The American Legislative Exchange Council's (ALEC) model bill for disclosure of chemicals injected into the ground during the controversial hydraulic fracturing ("fracking") process is back for a sequel in the Sunshine State legislature. 

ALEC's model bill was proposed by ExxonMobil at its December 2011 meeting and is modeled after a bill that passed in Texas' legislature in spring 2011, as revealed in an April 2012 New York Times investigative piece. ALEC critics refer to the pro-business organization as a "corporate bill mill" lending corporate lobbyists a "voice and a vote" on model legislation often becoming state law.

The bill currently up for debate at the subcommittee level in the Florida House of Representatives was originally proposed a year ago (as HB 743) in February 2013 and passed in a 92-19 vote, but never received a Senate vote. This time around the block (like last time except for the bill number), Florida's proposed legislation is titled the Fracturing Chemical Usage Disclosure Act (HB 71), introduced by Republican Rep. Ray Rodrigues. It is attached to a key companion bill: Public Records/Fracturing Chemical Usage Disclosure Act (HB 157).

HB 71 passed on a party-line 8-4 vote in the Florida House's Agriculture and Environment Subcommittee on January 14, as did HB 157. The next hurdle the bills have to clear: HB 71 awaits a hearing in the Agriculture and Environment Appropriations Subcommittee and HB 157 awaits one in the Government Operations Subcommittee.

Taken together, the two bills are clones of ALEC's ExxonMobil-endorsed Disclosure of Hydraulic Fracturing Fluid Composition Act. That model — like HB 71 — creates a centralized database for fracking chemical fluid disclosure. There's a kicker, though. Actually, two.

First kicker: the industry-created and industry-owned disclosure database itself — FracFocus — has been deemed a failure by multiple legislators and by an April 2013 Harvard University Law School study. Second kicker: ALEC's model bill, like HB 157, has a trade secrets exemption for chemicals deemed proprietary. 

First "Halliburton Loophole," then "ExxonMobil Loophole"

Back when the ALEC model bill was debated in the Texas legislature in spring 2011 (and before it was endorsed by ExxonMobil and eventually adopted as a model by ALEC), the bill was touted as an antidote to the lack of transparency provided at the federal level on fracking chemicals by both industry and environmental groups, such as the Environmental Defense Fund and the Texas League of Conservation Voters (LCV).

"[T]his is proof positive that the public, environmental groups, and the state’s energy industry can work together to ensure the health and safety of Texans," the Texas LCV said in May 2011.

Rep. Rodrigues said he was impressed by these dynamics when researching the bill online in comments provided by email to DeSmogBlog. 

"I was pleased to see the Environmental community and the Energy community jointly draft this legislation," he said.

FL Rep. Ray Rodrigues (R); Photo Credit: Florida House of Representatives

The lack of federal level transparency is mandated by law via the Energy Policy Act of 2005, as outlined in a sub-section of the bill best known as the "Halliburton Loophole."

The "Halliburton Loophole"— named such because Halliburton is an oil services company that provides fracking services and because when it was written, the company's former CEO, Dick Cheney, was vice president of the United States and oversaw the industry-friendly Energy Task Force — gives the oil and gas industry a free pass on fracking chemical disclosure, deeming the chemicals injected into the ground during the process a trade secret.

Yet, far from an antidote to the "Halliburton Loophole," a new loophole has been created in its stead at the state level — the "ExxonMobil Loophole" — which now has the backing of ALEC. The results haven't been pretty.

An August 2012 Bloomberg News investigation revealed FracFocus merely offers the façade of disclosure, or a "fig leaf" of it, as U.S. Rep. Diane DiGette (D-CO) put it in the piece.

"Energy companies failed to list more than two out of every five fracked wells in eight U.S. states from April 11, 2011, when FracFocus began operating, through the end of last year,"wrote Bloomberg. "The gaps reveal shortcomings in the voluntary approach to transparency on the site."

As we reported on DeSmogBlog in December 2012, FracFocus is a public relations front for the oil and gas industry:

FracFocus' domain is registered by Brothers & Company, a public relations firm whose clients include America’s Natural Gas Alliance, Chesapeake Energy, and American Clean Skies Foundation, a front group for Chesapeake Energy.

FracFocus was listed as an industry "ally" in the recently revealed scandalous Ohio Department of Natural Resources memo from 2012— now part of an Ohio House of Representatives investigation — which discussed how to push through fracking on public lands and divide Ohio's environmental community. It also received an initial $1.5 million in seed money in the aftermath the meetings between members of the industry-stacked 2011 Obama Administration Department of Energy Fracking Subcommittee.

Perhaps it shouldn't be shocking, then, that one of the bill's original co-introducers, Texas Rep. Lon Burnam (D), told Bloomberg, "This disclosure bill has a hole big enough to drive a Mack truck through.”

Texas' track record on fracking chemical fluid disclosure speaks for itself.

"Drilling companies in Texas, the biggest oil-and-natural gas producing state, claimed similar exemptions about 19,000 times this year through August,"explained Bloomberg. "Trade-secret exemptions block information on more than five ingredients for every well in Texas, undermining the statute’s purpose of informing people about chemicals that are hauled through their communities and injected thousands of feet beneath their homes and farms."

Or, as the Harvard University Law School study put it:

FracFocus prevents states from enforcing timely disclosure requirements, creates obstacles for compliance for reporting companies, and allows inconsistent trade secret assertions. Furthermore, the reliance on FracFocus by numerous states as a de facto regulatory mechanism sends a strong signal to industry that careful reporting and compliance is not a top priority.

Asked why HB 157 was introduced as a companion to HB 71 to begin with, Rep. Rodrigues cited the "Halliburton Loophole."

"HB 157 was introduced because there are existing exemptions for trade secrets in both state and federal statutes," he said. "Therefore HB 71 must be made compliant with existing law. Otherwise, HB 71 could be challenged in court and thus not enforced."

ALEC Legislator Ties to Florida Bills

At the January 14 Agriculture and Environment Subcommittee hearing in which HB 71 and HB 157 passed, Rep. Ray Rodrigues told his Subcommittee colleagues he got the idea for the proposed pieces of legislation from Texas Rep. James "Jim" Keffer (R).

"I contacted the Texas state representative who filed the bill, Jim Keffer, and asked him to send me that bill, which he did,"said Rodrigues at the hearing (begins at 9:57). "That bill was the foundation of which was submitted last year."

TX Rep. James "Jim" Keffer (R); Photo Credit: Texas Tribune

At the time he co-introduced the bill in 2011, Keffer was an ALEC member, according to SourceWatch.

Two of the Agriculture and Environment Subcommittee members who up-voted HB 71 and HB 157 — Rep. Ray Pilon (R) and Rep. Matt Caldwell (R)— have ALEC ties. Further, three members of the Agriculture and Environment Appropriations Subcommittee — Pilon, Rep. Ben Albritton and Rep. Debbie Mayfield — which is the next destination for HB 71, also have ALEC ties.

For HB 157, two members of the Florida House Government Operations Subcommittee have ALEC ties: Rep. Clay Ingram and Rep. Larry Ahern. Were both bills to advance to the House State Affairs Committee, three members of that committee have ties to ALEC, too: Albritton, Caldwell and Rep. Jason Brodeur. 

Will the Bills Pass? 

After contacting multiple sources in Florida, it appears far from a sure bet that the two bills will advance out of the current subcommittees.

Kevin Cleary, spokesman for Rep. Albritton, chair of the Florida House Agriculture and Environment Appropriations Subcommittee, told DeSmogBlog Rep. Albritton has no intention to bring HB 71 to a committee vote for now.

FL Rep. Ben Albritton (R); Photo Credit: Florida House of Representatives

A member of the Florida environmental community, who requested anonymity due to the speculative nature of his analysis, said he expects the bills to be tabled for the year, especially since elections loom in November.

"Since this is an election year, leadership may be considering whether to put their members in the position of having to vote for an unpopular bill when it's not likely to pass," said the source. "If that's the case, they might have sent word down the line to let them die quietly. But we're not relaxing, and won't until the bill is dead."

Photo Credit: Wikimedia Commons

For years, the shale industry has touted the economic benefits it can provide. An overflowing supply of domestic natural gas will help keep heating and electric bills low for American consumers, they argue, while drilling jobs and astounding royalty windfalls for landowners will reinvigorate local economies. These tantalizing promises have caught the attention of politicians in Washington, D.C. who argue that the rewards of relying on shale gas outweigh the risks, especially because harm can be minimized by the industry or by regulators.

But across the U.S., communities where drilling has taken place have found that the process brings along higher costs than advertised. Even when properly done, drilling carries with it major impacts — including air pollution, truck traffic, and plunging property values — and when drillers make mistakes, water contamination has left residents without drinking water or cleaning up from disastrous well blow-outs.

And as the shale drilling boom moves into its 12th year, the most crucial benefit claimed by drillers — cheap and abundant domestic fuel supplies — has come increasingly into question. The gas is there, no doubt, but most of it costs more to get it out than the gas is worth.

A new report from New York state, where a de facto shale drilling moratorium has persisted since 2008, concludes that unless natural gas prices double, much of the shale gas in the state cannot be profitably accessed by oil and gas companies.

Using public data from Pennsylvania, the researchers predict that shale gas will be far more expensive to extract than current natural gas prices would suggest. And even if gas prices double, their analysis of production history suggests only small regions of the Marcellus in New York can be profitably tapped.

“At current gas prices near $4.00-4.50/MMBtu (Million British Thermal Units), the results of this study indicate that no area in New York is likely to be commercially viable,” petroleum geologist Arthur Berman and petroleum engineer Lyndon Pittinger wrote in their report, which was commissioned by the League of Women Voters of New York State, adding that at $8/MMBtu, at most 9.1 trillion cubic feet of gas can be profitably drained from the Marcellus.

Their conclusions were based on a review of production data from over 4,000 active Marcellus wells in Pennsylvania and West Virginia.

These projections stand in sharp contrast to the projections described in New York state’s draft 2014 energy plan, now open for public comment. In that report, state regulators cite up to 516 trillion cubic feet of gas held in the formation, while adding in a footnote that only 10 percent of that gas is likely to be economically recoverable. The new report finds only a fraction of that can be produced even at $8/MMBtu, double what gas costs today.

“If New York is building an energy plan based upon access to a resource, such as natural gas, it is critically important to know whether and to what extent that resource exists,” said attorney Elisabeth Radow, Chairwoman of the New York State League of Women Voters’ Committee on Energy, Agriculture and the Environment.

A sprint to lock down oil and gas leases in shale fields nationwide released a huge glut of natural gas onto the market over the past few years. But as the hard slow work of drilling hundreds of thousands of shale wells across huge swaths of the U.S. truly begins – in industry parlance, the shift from “land rush” to “build out” – major oil and gas companies like Exxon and Shell have admitted that shale projects are too expensive to be profitable while gas prices remain low.

“Financial performance there is frankly not acceptable,” Shell CEO Ben van Beurden said last month, referring to shale projects in North America. “Some of our exploration bets have simply not worked out.”

Some industry analysts say that his comments simply show that Shell is worse at shale development than its competitors. “Whether this is a signal, as some argue, that the US oil boom is overhyped, it is too soon to tell,” said a column in November’s Economist, after Shell announced it was slashing onshore operations in North America. “What is clearer is that Shell paid dearly for unexplored land at the peak of shale mania.”

But other companies have also struggled in the shale and at times have had to admit that investors lost money over their attempts, like Exxon CEO Rex Tillerson did in July 2012. “We are all losing our shirts today,” Mr. Tillerson said. “It’s all in the red.”

Another major oil and gas company, BP, recently spun off its shale division, arguing that a smaller company would be more nimble and “compete more effectively with independents.”

But industry analysts saw a bigger trend. “Shell has failed miserably in generating any returns from US shale, and BP does not want to make the same mistake,” Fadel Gheit, an oil analyst at Oppenheimer & Co, told the Financial Times on March 4.

If the Marcellus shale boom’s economic potential has been over-hyped, as the new report suggests, that does not mean that drilling and fracking will simply peter out. In the face of challenging economic conditions, companies find ways to adjust.

They may try to drill multiple formations at once, for example, targeting both the Utica and the Marcellus shale formations simultaneously, although the potential returns from the Utica are even less well understood than in the Marcellus and targeting the two formations would add costs for drillers.

“The Utica is older and deeper than the Marcellus and while the two have areas of potential overlap, the Utica in Pennsylvania and New York becomes very deep and very hot and over-mature in a hurry,” explained Mr. Berman. “If the Utica were a viable target, people would be drilling for it right now.”

There are signs that even for smaller shale gas companies, these costs have eroded profits. To adjust, some drillers have adopted cost-cutting measures that left their business partners — investors and the people living in the gas fields who leased their land — feeling burnt.

In Pennsylvania, landowners who leased their land for drilling to Chesapeake Energy complain that the company has begun making massive and potentially illegal deductions from their royalty checks. Landowners report that their monthly royalty checks have plunged as much as 94 percent, an investigation by ProPublica found. Using these techniques, Chesapeake raised $5 billion dollars. “They were trying to figure out any way to raise money and keep their company alive,’’ one industry source told ProPublica.

For years, the company was also accused of using deals called Volumetric Production Payments to keep debt off its books. In its most recent report to investors, ProPublica found, Chesapeake for the first time revealed just how extensive those deals were: the company had $36 billion in “off balance sheet arrangements” — vastly higher than the $1.4 billion in such deals that the Wall Street Journal estimated in 2012.

Without strong regulation, drillers under financial pressure may also cut corners by failing to follow industry “best practices” — and that can lead to serious environmental harms and mistakes that cause accidents.

The simplest way for shale gas to become profitable, however, is for prices to rise. Although the EIA currently projects shale gas prices will stay at roughly $4/MMBtu for decades, their prediction would change dramatically if more natural gas export terminals are opened up across the U.S.

And if gas prices rise sharply after natural gas power plants and pipelines are built, American consumers are the ones who could wind up feeling burnt by the shale gas boom.

Photo Credit: Oil value Bubble about to explode by a needle, Via Shutterstock.

Leave it to Washington's top attack-dog lobbyist Richard Berman to verify what many always suspected: that the oil and gas industry uses dirty tricks to undermine science, vilify its critics and discredit journalists who cast doubt on the prudence of fossil fuels.

In a speech at an industry conference in June, surreptitiously recorded by an energy executive, Rick Berman, the foremost go-to guy for Republican smear campaigns, gave unusually candid advice to a meeting of drilling companies.

“Think of this as an endless war,” he told executives in a speech, which was leaked to The New York Times by an attendee at the conferenece who was offended by Berman's remarks.

“And you have to budget for it.” He said the industry needs to dig up embarrassing tidbits about environmentalists and liberal celebrities, exploit the public’s short attention span for scientific debate, and play on people’s emotions.

“Fear and anger have to be a part of this campaign,” Berman said. “We’re not going to get people to like the oil and gas industry over the next few months.”

Berman also advised that executives continue to spend big. “I think $2 to $3 million would be a game changer,” he said. “We’ve had six-figure contributions to date from a few companies in this room to help us get to where we are.”

But always cover your tracks, he suggested, adding that no is better equipped at doing so than his firm. “We run all this stuff through nonprofit organizations that are insulated from having to disclose donors. There is total anonymity,” he said. “People don’t know who supports us. We’ve been doing this for 20-something years in this regard.”

Berman, whose tobacco ties were profiled yesterday by DeSmog contributor John Mashey, is the founder and chief executive of the Washington-based Berman & Company consulting firm. He attended the conference in Colorado, hat in hand, looking to raise money from energy companies for an advertising and public relations campaign he started called Big Green Radicals.

The campaign has already placed a series of intentionally controversial advertisements in Pennsylvania and Colorado, heavy drilling states. The firm has also paid to place its media campaign on websites aimed at national and Washington D.C. audiences.

The event where Berman spoke was held in Colorado Springs, and was sponsored by the Western Energy Alliance.

“[W]herever possible, I like to use humor to minimize or marginalize the other side,” he told the crowd, which included executives from drilling firms like Chesapeake Energy and EnCana Oil and Gas along with energy services companies like Halliburton, industry trade associations, law firms and banks, according to a scheduled attendee list also provided to The Times.

Mr. Berman was joined at the conference by Jack Hubbard, a vice president at Berman & Company, who described the P.R. firm's approach for targetting what they labeled “radical” groups like the Sierra Club, Natural Resources Defense Council and Food and Water Watch. A full transcript of their speech was published by The Times.

“So we thought, how are we going to kick off this campaign? Take the typical Berman and Company model, in terms of undermining these folks’ credibility and diminish their moral authority,” Hubbard explained, adding that they had done “a whole bunch of intense opposition research into their board of directors” – and wound up with nothing more than a campaign based on the gas mileage of the directors’ personal vehicles.

“But one of the things we are really focused on is how do we take the message, put it on a bumper sticker, and get it out to the public so it gets coverage and you break through the 24/7 news cycle,” he said, citing the campaign as an example of their effectiveness at changing the public's perception of an issue through personal attacks on advocates.

The team’s tactics include taking advantage of people’s short attention spans, especially where ballot initiatives and issues of local control are concerned.

“The next thing you know, you’re trying to play defense against multiple public initiatives that are very different and very complex. And the public, frankly, doesn’t have the time or the brain to understand them all,” Hubbard told the oil industry representatives. “So what we wanted to do is that we wanted to brand the entire movement behind this as not being credible and anti-science.”

Berman described the job of convincing people as he sees it — introducing just enough doubt that even if people don’t support an issue, they’re confused enough to write it off.

“Instead of getting the ‘he said she said’ debate, what you will get with the factual debate, often times, you’re going to get into people get overwhelmed by the science and ‘I don’t know who to believe,” Berman told the attendees at the conference. “But if you got enough on your side you get people into a position of paralysis on the issue.”

“You get into people’s minds a tie. They don’t know who is right,” he said. “And you get all ties because a tie basically ensures the status quo.”

It is unclear whether people have the stomach for more of this type of behavior. Even the pro-drilling Denver Post Editorial Board has criticized the tactics that Berman suggested and which industry public relations outlets like Energy In Depth have been using for years, calling one ad“a cheap shot at fracking foes.”

But the industry itself is desperate as public concerns about climate change increase and popular sentiment turns against more drilling. And desperate times mean desperate measures.

The recording is by no means the first evidence of these aggressive and ad hominum tactics. Last month, DeSmog described how the industry’s attack machine has gone after major foundations and endowments, attempting to frame their donations to environmental groups as an insideous conspiracy to undermine American energy production instead of a response to the growing number of problems related to fracking.

Back in 2011, CNBCrevealed that Range Resources was taking military psy-ops skills and applying them to political battles in Pennsyvlania and across the U.S., with an official from another shale gas company, Anandarko, telling attendees at a Houston shale conference that “we are dealing with an insurgency.”

They’ve also claimed that the media is waging a “war on shale gas” at times when reporters started asking tough but vital questions, surrounding dubious financial practices and how toxic waste from fracking is handled, for example.  The industry famously targeted the New York Times itself back in 2011 when that paper ran Drilling Down, an award-winning investigative series about fracking.

In the recorded speech, Berman and Hubbard provided detailed public relations advice to those gathered. “If you want a video to go viral, have kids or animals,” Berman said.

“There is nothing the public likes more than tearing down celebrities and playing up the hypocrisy angle,” Mr. Hubbard added, describing a series of billboards deploying personal attacks on Yoko Ono and Robert Redford, both of whom have spoken out against fracking. 

Berman is also known for having created the American Beverage Institute  in 1991, which lobbied against tougher restrictions on drunk driving, while protecting its donors. But Mr. Berman is especially notorious among labor unions, another of his favorite adversaries.

“I get up every morning and I try to figure out how to screw with the labor unions — that’s my offense,” said Berman who created the so-called Center for Union Facts, which led a $10 million anti-union campaign without disclosing donors.  “I am just trying to figure out how I am going to reduce their brand.”

Listen to the audio recording of Berman spilling his secrets in full. H/T CREW. 


Brad Johnson has also posted the audio along with related materials: 

On December 12, Magistrate Judge Mark R. Abel issued an order for the U.S. District Court for the Southern District of Ohio to place five sets of court records under seal for the ongoing case pitting coal baron Robert E. Murray against Aubrey McClendon, one of the godfathers of the hydraulic fracturing (“fracking”) boom.

DeSmogBlog published parts of two sets of the five sets of documents ordered under seal by Abel in an October 2014 article about the Murray v. McClendon case. The documents we published revealed a lease for McClendon's new venture — American Energy Partners — for the first time. 

Bob Murray, owner of American Energy Corporation Century Mine in Ohio, sued Aubrey McClendon for allegedly infringing upon his company's copyright in August 2013. He claimed McClendon commandeered the “American Energy” brand.

Both sides have now gone back-and-forth over discovery related issues for months. The dispute has shaken loose many newsworthy documents revealing much about McClendon's new company in particular.

This includes the American Energy Partners lease; a local newspaper advertisement pushing readers to apply for an American Energy Partners job; heavily redacted depositions of officials representing both companies; a redacted document revealing some of the companies to which McClendon's new venture sells the gas it produces; and more.

The rationale of Judge Abel's decision to seal the court documents goes unexplained in his order.

Image Credit: U.S. District Court for the Southern District of Ohio

DeSmogBlog reached out to Judge Abel for comment and received the following response:

It is my practice to let my filed orders speak for themselves. I recognize that the December 12, 2014 order (doc. 90) is cryptic. There is a protective order in this case that permits the parties to designate proprietary business information as highly confidential. When that information is presented to the court in a brief, the protective order requires the party filing the brief to request that the court order that the brief be sealed. When a sealed brief is filed, my practice is to require the party to file a redacted version of the brief that lets the public read the arguments the party is making to the court but does not include the information designated highly confidential. (The protective order provides that a party or member of that public has the right to challenge a highly confidential designation.)

On December 12, 2014, counsel for all parties called me and jointly requested that I order the briefs identified in the motion sealed. No briefs were or will be filed. The attorneys called on the telephone. It is my practice to listen to the litigators' arguments on the phone, then reduce any ruling I have made to writing after the call. I do not record the telephone conversations.

DeSmogBlog mentioned the protective order referred to by Judge Abel in our initial article on the Murray v. McClendon case. Counsel for both parties in the case did not respond to a request for comment. 

Sealed Documents Detailed

DeSmogBlog has followed this case closely since Murray filed his initial complaint in August 2013, regularly checking the docket and saving copies of the court documents along the way.

Thus, we possess most of the court documents now under seal via Abel's order, with some already published in the initial Murray v. McClendon DeSmogBlog article and others now published here for posterity.

Magistrate Judge Mark R. Abel; Photo Credit: U.S. District Court for the Southern District of Ohio

“If a sealed document is the type which the press and public have historically had access to, then that weighs in favor of finding a First Amendment right of access. With that in mind, it should be pretty obvious that the press and public have historically had access to records which were, well, already public,” Kel McClanahan, executive director of National Security Counselors, told DeSmogBlog.

“While there’s definitely no 'cat out of the bag' rule that says once something is filed publicly, it can never be sealed, there should be a higher standard for sealing something that was previously public,” McClanahan said.

Besides the American Energy Partners jobs advertisement published in the first DeSmogBlog piece, Abel also ordered a Murray memorandum in opposition to McClendon's motion for a protective order to be placed under seal that was also published in the article. In that memo, Murray's legal team argued that the protective order would have prohibited it from undergoing a more robust discovery process. 

Abel also ordered the Affidavit of Heather Santini, a receptionist at American Energy Corporation, sealed. DeSmogBlog mentioned the document in its initial article on this case.

Both the memorandum in opposition to McClendon's motion for a protective order and the Heather Santini affidavit make the argument that McClendon's “American Energy” name choice has caused “potential and actual confusion” among customers and prospective customers, the standard which Murray Energy's legal team says equals grounds for copyright infringement.

Other documents in DeSmogBlog's possession, but not published in the initial article, include:

-the Declaration of Vladimir P. Belo, a member of Murray's legal counsel for the case;

-a Discovery Dispute Conference Order issued by Abel;

-a Murray motion to extend discovery deadlines;

-another American Energy Partners jobs sales pitch;

-a recent McClendon line-by-line discovery response;

-emails exchanged in November between both parties' legal counsels on discovery issues

-and an index to exhibits filed as part of a discovery dispute

Further, two batches of discovery-related contestation material — over 300 pages in total — are now under seal but published here. 

Seal Order Legal?

A 2010 article published by the Federal Judicial Center — the education and research wing of the U.S. federal courts — titled ”Sealing Court Records and Proceedings: A Pocket Guide,” discusses both the legality and principles involved in the decision to seal court records in federal cases.

“Essential to the rule of law is the public performance of the judicial function,” the paper says. “The public resolution of court cases and controversies affords accountability, fosters public confidence, and provides notice of the legal consequences of behaviors and choices.”

Citing the landmark Nixon v. Warner Communications, Inc.U.S. Supreme Court case, the paper further explains that in U.S. federal courts there is an assumption of right to access court records. 

“It is clear that the courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents,” reads the ruling in that case.

In a related case, Associated Press v. U.S. District Court for the Central District of California, the U.S. Court of Appeals for the Ninth Circuit came to a similar conclusion about access to pretrial motion documents for civil cases akin to Murray v. McClendon. 

“There is no reason to distinguish between pretrial proceedings and the documents filed in regard to them,” reads the opinion for that case. “We thus find that the public and press have a first amendment right of access to pretrial documents in general.”

Star Chamber Specter

Reporters Committee for Freedom of the Press also explains that — unlike what Judge Abel did for this case — judges must at least offer the public a legal rationale for sealing documents. 

“Where the First Amendment protects the right of access to court documents, judges must, before restricting public access to a case, articulate specific, on-the-record findings demonstrating that sealing is necessary to serve a compelling government interest and that the sealing order is narrowly tailored to serve that interest,” they wrote.

Which begs the question: did the off-the-record phone conversations meet that legal and public interest barrier? 

“Even though judges are supposed to take all things into account to avoid situations where both parties agree to do something that is still not in the public interest, many judges often resist denying something that both the parties agree on,” said McClanahan. 

“Litigation is an adversarial system, and if the parties are in agreement, often judges will go along with it in the interest of efficiency. Judges value their time and energy as much as the rest of us.”

McClanahan further pointed out the slippery slope of sealing documents, which raises the specter of tipping the balance of the U.S. court system in an undemocratic direction.

“In the end, the strong presumption in favor of open court records is not about the dispute or even the parties, it is about the process. Americans have to have confidence in the integrity of the judicial process as a whole, and any deviation from that raises the specter of a Star Chamber,” he said. “It is for that reason that parties who wish to seal court records are supposed to have a much harder time of it than those who advocate transparency.”

Image Credit: iQoncept| Shutterstock 

Chesapeake Energy has sued its former CEO, Aubrey McClendon, for allegedly stealing its trade secrets in the months between his resignation and the formation of his new company, American Energy Partners. To defend itself outside of the courtroom, American Energy Partners has hired Edelman, the 'world's largest' and often controversial public relations firm.

Filed on February 17 at the District Court of Oklahoma County, Chesapeake's legal complaint alleges McClendon covertly took map-based data owned by the company in the time between resigning from the company and then officially leaving the company in early 2013. Chesapeake also alleges that he then utilized that same confidential data for business and investment decisions at his new startup in deciding which land to purchase for hydraulic fracturing (“fracking”) for oil and gas.

“AEP used confidential information and trade secrets stolen by McClendon from Chesapeake as a basis for their decision to acquire certain acreage in the Utica Shale Play,” alleges the lawsuit. “Further, in acquiring this acreage…AEP interfered with Chesapeake's business plans and its negotiations for its own acquisition of acreage in the Utica Shale play.”

Chesapeake Energy alleges that, before taking the data with him, McClendon asked a former company vice president of land, whose name is redacted in the complaint, to optimize and update the data.

Image Credit: District Court of Oklahoma County

McClendon also had his executive assistant print out maps for him that were until that point only stored on company computers, according to the legal complaint. Further, the complaint details, he blind carbon-copied (BCC'd) “dozens of emails” of those same maps to his personal email address for later use. 

Image Credit: District Court of Oklahoma County

That executive assistant (whose name is redacted) now serves as McClendon's executive assistant at American Energy Partners, according to the complaint. 

The assistant is one among close to 200 employees who left Chesapeake and joined American Energy Partners, where they work just down the street from Chesapeake's corporate headquarters. 

Edelman: McClendon Media Contact

In the news lately for landing a contract worth hundreds of millions of dollars to do PR over the past several years for American Petroleum Institute (then watching that contract expire), and working with TransCanada on a controversial plan to promote the Energy East tar sands pipeline, Edelman is listed as American Energy's media contact for the lawsuit.

At the bottom of the lawsuit website created by American Energy, the company lists Edelman's Ryan Colaianni as its media contact. According to his LinkedIn page, Colaianni works as a senior account supervisor for Edelman.

Image Credit: AELPvCHKlitigation.com

Like the gaggle of employees and “land grab” tactics McClendon has brought with him to American Energy Partners, he also used Edelman for public relations services while he served as the controversy-laden CEO of Chesapeake Energy.

According to an October 2012 press release, Chesapeake and General Electric utilized Edelman for communications efforts surrounding their joint compressed natural gas ”CNG in a Box” initiative. 

Furthermore, on her LinkedIn page Natalie (Wilson) Ilseng — an Edelman senior account executive — lists Chesapeake among her current or past clients.

Edelman also used to do PR work for the American Legislative Exchange Council (ALEC), described by its critics as a “corporate bill mill.” Chesapeake Energy in the past has sponsored an ALEC meeting.

McClendon Responds to Allegations

McClendon and his legal team, as well as American Energy Partners' investors, have already responded to the lawsuit in a very public way. They have all issued statements declaring full innocence, on top of creating a website dedicated to the case. 

“It is beyond belief that the company that I co-founded 25 years ago and where I worked tirelessly to build it into one of America’s largest and most successful oil and gas producers has now decided to add insult to injury almost two years to the day after my resignation by wrongly accusing me of misappropriating information,” McClendon declared in a press release.

“It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake.”

In other words, McClendon and his legal team have shown their cards. It appears they will argue in court that everything he took with him to American Energy Partners fits within the confines of contracts signed and agreed to by both sides.

American Energy Partners has published those contracts online, including the “Summary of Agreed Terms of Post Separation Founder Services Agreement,” the “Founder Separation and Services Agreement” and the “Founder Joint Operating Services Agreement.”

“Our filings will show that any information in Mr. McClendon’s possession is rightfully his pursuant to the terms of the agreements entered into between the parties,” Matthew Taylor, an attorney at Duane Morris and McClendon's lawyer, said in a press release. “We are 100% confident that Mr. McClendon and AELP will prevail in this dispute.”

Judge Patricia G. Parrish will preside over the case that will likely create headlines in the business and legal press for months to come.

If it goes their way, Edelman will help shape some of those headlines on behalf of American Energy Partners.

Edelman's Colaianni did not respond to questions from DeSmogBlog at the time of publication.

Photo Credit: Matthew Staver/Bloomberg via Getty Images

In 2010, the Environmental Protection Agency (EPA) launched an ambitious and highly consequential study of the risks that hydraulic fracturing, or fracking, poses to American drinking water supplies.

“This is about using the best possible science to do what the American people expect the EPA to do – ensure that the health of their communities and families are protected,” Paul Anastas, Assistant Administrator for the agency's Office of Research and Development, said in 2011.

But the EPA's study has been largely shaped and re-shaped by the very industry it is supposed to investigate, as energy company officials were allowed to edit planning documents, insisted on vetting agency contractors, and demanded to review federal scientist's field notes, photographs and laboratory results prior to publication, according to a review by DeSmog of over 3,000 pages of previously undisclosed emails, confidential draft study plans and other internal documents obtained through open records requests.

Company officials imposed demands so infeasible that the EPA ultimately dropped a key goal of the research, their plans to measure pollution levels before and after fracking at two new well sites, the documents show.

All told, the documents raise serious questions about the study's credibility and they highlight a certain coziness between the EPA and Chesapeake Energy, one of the most aggressive oil and gas companies in the shale gas rush.

“[Y]ou guys are part of the team here,” one EPA representative wrote to Chesapeake Energy as they together edited study planning documents in October 2013, “please write things in as you see fit”.

Chesapeake took them up on the offer.

Company officials repeatedlypushedEPA to narrow the scope of the national study to focus exclusively on the fracturing stage, the documents show, even though the agency had already announced that the study would include drilling, wastewater disposal and other parts of the process (times when water contamination can often occur).

“It appears the EPA has extended the scope of the study to include all development activities,” a company representative wrote, objecting to language used in study plans in October 2013. “CHK recommends that the EPA focus only on hydraulic fracturing.” CHK refers to Chesapeake Energy.

Though it is not clear whether Chesapeake's attempts to wordsmith were adopted by the EPA, the company did successfullypressure the agency to start its baseline testing at a Chesapeake site later in the oil and gas extraction process, after drilling was completed.

The reason this matters to the public is that it meant that EPA's tests would not be able to spot problems that emerged during the stages before the actual fracking stage, effectively narrowing the scope of the research.

In a sort of death-by-a-thousand lashes approach, the company created other delays in the study.

For example, EPA's plans to focus on a Chesapeake site in the Haynesville Shale were put in jeopardy when the company decided to move forward with drilling before the EPA would be able to take its baseline testing.

“We are disappointed that all our collective work associated with that site cannot be accomplished based on these documents,” Chesapeake wrote to the EPA on February 6, 2012, “but will nonetheless work with you to find another prospective site.” A draft EPA statement asserted that this would not affect the study's overall timing – but the agency went on to miss the deadline described in that document.

Chesapeake next used their ability to edit the documents to raise additional objections that ultimately led the EPA to cancel their testing plans altogether.

“Given the current schedule, there does not appear to be enough time to capture the seasonal variation in sample characteristics, however this is critical to determining if a change is significant,” Chesapeake warned EPA in October 2013.

Federal environmental officials later cited this issue in explaining why their agency has been unable to find any suitable well sites to conduct its testing. 

“For a location to be suitable, it is necessary to gather a minimum of one year of characterization data for ground water and surface water prior to and following unconventional exploration activities in the study area, and for there to be no other hydraulic fracturing activities on adjacent properties, currently or potentially leased, during the entire study period, which could last several years,” Claudia Meza-Cuadra, Office of Science Policy of the EPA, wrote in a June 13, 2014 email to a Greenpeace representative who inquired if testing plans were cancelled. “Unfortunately, so far we have not identified a suitable location.”

In essence, the industry successfully bogged the federal agency down, eventually forcing the EPA to lower its ambitions.

The role Chesapeake and other industry officials are playing in re-shaping the EPA's study matters.

Historically, regulation of oil and gas drilling has largely been left to states. Federal lawmakers pushed for the EPA to conduct its own national study as a potential first step toward imposing tighter and more uniform rules on the industry. But this study, which has proceeded at a glacial pace, has progressively been watered down since the outset. 

Initially, the study was supposed to consist of four distinct parts. It would use powerful computers to model theoretical risks, investigate reported contamination in five states, devote itself to precise quality control, and crucially, directly measure pollutant levels before and after fracking at two separate well sites, to show what changed after the industry began its work.

But EPA's plan — especially for the direct measurement part of the study — called for a heavy reliance on industry cooperation and voluntary agreements about access to drilling and fracking sites. Companies like Chesapeake Energy and Range Resources used this to extract a series of promises from the EPA (and their leverage increased as other companies in the industry declined to participate in the study). The documents reviewed by DeSmog were provided by Greenpeace, which obtained them through an open records request.

Range Resources Enjoyed Favorable Treatment from EPA

For example, a confidential agreement between Range Resources and the EPA shows a series of concessions by federal officials. Three days notice was to be given before scientists visited the well site. Scientists were to be accompanied by a company expert at all times. Range was to be given accelerated access to any test results showing possible contamination. Range would be given 30 days to review “any draft report” using data from their sites before publication. The company would be provided with copies of all pictures and video taken at the site.

Companies were also promised the ability to take samples at the same time and locations as EPA, enabling them to conduct their own shadow studies. The industry used that access to hire a contractor to conduct a review of the EPA's study. Emails between top level EPA officials show repeatedreferences to those reviews.

EPA officials declined to respond to specific questions from DeSmog surrounding the documents, but did point to the agency's commitment to robust involvement by stakeholders. “[F]rom a scientific point of view and working with the budget Congress gave us, we have been gathering the data necessary to best answer the scientific questions that were posed in the hydraulic fracturing study,” EPA spokesperson Liz Purchia wrote in an email to DeSmog.

Over the past two years, while the federal research has dragged, in no small part due to the extensive energy industry involvement, consensus opinion within the broader scientific community has begun to coalesce on the serious risks posed by fracking. Two thirds of scientists surveyed in January by the Pew Research Center oppose increased use of fracking, while 31 percent support it. 

A representative from API failed to respond to a request for comment from DeSmog, but API has previously called forEPA to pay greater attention to input from stakeholders such as oil and gas drillers.

And yet, the documents highlight that the industry has no shortage of access to the study.

EPA officials repeatedly offered to allow Chesapeake Energy to fund additional sampling (“If CHK wants 3 [samples], they can pay for it,” an EPA official tells the company, for example). It is not clear whether Chesapeake paid for additional tests or whether such data was integrated in the federal study. If either occurred it could raise questions about the independence of the federal agency's  research.

Chesapeake Energy also demanded the right to vet the EPA's monitoring well drilling contractors and even to review field testing notes and photographs.

“Review of the field results is very important and needs to be conducted immediately after sample collection by both EPA and CHK jointly,” a company official wrote in the margins of EPA's planning documents, objecting to EPA's plans to have field results reviewed by EPA and its contractor.

The companies also used their access to planning documents to sow the seeds for later objections. For example, Chesapeake officials called for all other possible sources of contamination within a three-mile radius of wells to be identified. They pushed for the EPA to limit their testing to shallower depths of underground water supplies. They criticized the types of testing and the substances to be tested for. They called for the EPA to describe exactly how they will distinguish between various possible causes for any changes in chemical levels revealed by tests.

But the oil and gas industry is not the only outside interest group playing an active role in federal research that was supposed to be independent.

The documents show active participation from former and current political appointees.

For instance, the documents show Heather Zichal, former Obama White House Deputy Assistant to the President for Energy and Climate Change, was involved in discussions surrounding the study. Ms. Zichal has been nominated to the board of directors of Cheniere Energy, which plans to export Liquified Natural Gas through a LNG terminal in Corpus Cristi, as DeSmog recently reported.

The role played by White House level oversight drew some mild chiding from EPA officials involved in the study. “This is after all a scientific study” Robert M. Sussman, a Senior Policy Counselor for the EPA, wrote in a June 2012 email to others high up in the agency, including then-administrator Lisa Jackson, “and the scientists need some room to do their work.”

Photo Credit: “Pipette adding fluid to one of several test tubes”, via Shutterstock.

With oil prices continuing to languish, companies like Halliburton and Schlumberger have started talking up a way to get more shale oil and gas for less money: re-fracking wells drilled over the past 10 years, kick-starting flagging production and pumping out more shale oil and gas while spending less than the cost of a new well.

Excitement has spread among oil companies and investment analysts alike.

“You want to talk about the next step to increasing production without increasing costs?” Carl Larry, director of oil and natural gas at Frost & Sullivan, a consulting firm, told Bloomberg. “Re-fracking looks great.”

“In terms of the market potential, I think you're talking billions in terms of revenue opportunities over an extended period of time,” Schlumberger CEO Paal Kibsgaard told investors during a quarterly conference call this year. “[I]n terms of how many wells, I would say there are thousands of wells in North America land that are candidates for refracturing, and this is both shale liquids and shale gas.”

“If you look at the top operators across North America that we work with, there’s not a single one of them that’s not talking about re-fracks today,” David Adams, a Halliburton vice president, told Bloomberg.

“E&Ps are no longer on a treadmill,” IHS Energy Senior Consultant James Coan, announced on May 20, according toE&P Magazine, (E&P refers to Exploration and Production oil and gas companies).

Despite the headlines touting re-fracking as a ticket to solvency for drillers despite low oil prices, many are skeptical that the technology is nearly as ready as the oil industry would like it to be. Early efforts to re-fracture wells have repeatedly run into stumbling blocks, earning it the nickname“pump and pray” within the industry.

So oilfield services companies are experimenting with re-fracking techniques, hoping that they will figure out how to make re-fracking less financially risky. The push to find new ways to re-frack wells is being compared by some to the onset of the shale rush itself.

“Who is going to be the George Mitchell of re-frack?,” Mr. Coan asked during webinar last month, referring to the wildcatter who first produced substantial amounts of gas from the Barnett shale.

If you believe the hype, an enormous number of shale wells could wind up being re-fracked – bringing rigs, truck traffic, and all the associated impacts of fracking right back to wells that were drilled just a few years earlier. At least 50,000 existing wells nationwide are considered candidates for re-fracking, according to Bloomberg. An IHS analysis predicts that refracks will rise 20 percent over the next several years, up from just one percent of current wells.

The dash to experiment with re-fracking at wells nationwide is also raising concern that re-stimulating wells could put unanticipated stresses on aging wells and that state regulators are unprepared to regulate the myriad of techniques that may be used – and for the sheer volume of additional water consumed by the re-fracking process and the additional wastewater that would be produced.

The drive to re-fracture old wells also renews doubts about drillers’ claims to investors that the shale wells they drilled would produce at profitable volumes for up to 65 years – since some of the wells being touted as re-fracking successes are as little as two years old.

Investors have long known that shale wells have a notoriously fast decline – dropping off 60 to 70 percent after just a couple of years. But when drillers calculate their reserves and report them to the Securities and Exchange Commission, they assume that shale wells will keep pumping out profitable levels of oil and gas for decades – a claim no one can prove or disprove with certainty because even the first shale wells are under 15 years old and drillers argue that those wells didn’t use current technologies.

While those predictions remain unproven, it is clearly established that shale wells generally have dazzling initial production rates that fizzle fast, and that fast decline has been the main reason that many companies are caught up in the need to continually drill more wells to replace the drop-off in production from older wells. It’s what industry analysts like Mr. Coan call a “drilling treadmill,” where companies must constantly keep drilling new wells just to stay in one place.

Instead of escaping the treadmill cycle, companies that re-fracture could wind up caught on a different treadmill, where each individual well requires additional millions of dollars’ worth of re-fracking just to keep it pumping out oil. (A round of re-fracking generally costs about $2 million, Halliburton Co. estimates.) Since the process is only recently being applied to shale wells, no one can say for certain how long the boost from re-fracking will last, or if a well’s production will quickly plummet just like it does with the first frack job. (Platts reported predicted drops of up to 70 percent, which would be roughly the same as an initial frack job).

In years past, re-fracking was largely confined to vertical well bores, but companies are now experimenting with methods that let them re-stimulate horizontally drilled shale wells, making far more wells potential candidates for re-fracking.

Companies are trying out many different tactics to re-stimulate shale wells. They sometimes simply pump more sand, water and chemicals into an existing well, re-opening fractures that have been forced shut by the enormous weight of the rock around them. Other times, re-fracking means creating new fractures between existing ones. Or it can mean pumping special plastic bits into a well, in the hopes that fractures with little oil or gas flowing out of them will get clogged, raising the overall pressure of the well.

Many industry analysts remain skeptical that re-fracking can turn unprofitable wells into the next gusher – or even bring poorly performing wells into the black. “While operators can make a good return on the best candidates, those wells can be difficult to identify and it can be even harder to convince partners that making a significant investment in a producing well is best,” wrote Wood Mackenzie analyst RT Dukes. “A general rule of thumb did emerge: if it doesn’t make sense to drill and complete wells, it probably doesn’t make sense to recomplete them in earnest either.”

That’s bad news for shale investors, since up to 40 percent of shale wells are money-losers when oil prices are low, according to Robert Drummond, President of North America for Schlumberger, who dropped that statistic during a World Oil breakfast talk last year.

It’s also bad news for landowners hoping for royalty checks. Already, a wave of bankruptcies has begun to sweep across the industry, leaving Quicksilver Resources and at least three others insolvent and analysts predicting more to come. 

The downturn has also slashed expectations that the shale rush would bring jobs to many communities, as workers are now being laid off instead of hired. As of March, over 75,000 workers had lost their jobs due to the oil bust.

Facing this kind of financial pressure, some drillers have described their early experiments as extremely successful as they try to keep investors interested and capital flowing in.

“We've seen such a dramatic improvement in our completion results with the newer technology,” Tony Vaughn, a vice president for exploration of Devon, told Reuters last month.

And some investors, it seems, have been listening.

“We’ve been re-fracking in essence for a couple of years, and we actually see this as a natural extension with the maturing of unconventional wells overtime,” Jeff Miller, president of Halliburton Co. told investors on an April 20 conference call. “I would say what has changed in terms of giving it energy right now, more energy is the current market and access to capital.”

If re-fracking catches on, a few impacts seem inevitable – the shale industry will consume more water overall than previously expected based on one round of fracking per well. That means much more wastewater, this time contaminated with naturally occurring toxic and radioactive materials plus potentially a mix of chemicals from two different rounds of fracking.

There are other potential impacts about while little is known, due to lack of study, and for which state regulators seem as unprepared as they were at the start of the initial shale rush.

What impact will re-fracking (and additional wastewater disposal) have on earthquakes? What chemicals, proppants and other materials will companies use to re-stimulate shale wells and what risks do they pose to workers or if spills or leaks occur? Is it safe to re-frack where there are multiple wells all bored from the same pad, or will fractures from one well accidentally connect with fractures from an adjacent well? How will the concrete and steel well casings hold up under repeated pressurization? How many times can a well be re-fracked before it begins to crack and leak under the added pressure?

“It sort of shows how much we don't know about fracking,” Andrew Logan, director of Ceres’ oil and gas program, told Reuters last year, “and why it fails sometimes.”

Photo Credit: “American Oil Industry” via Shutterstock.

For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another.

The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet.

“This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement - and go beyond - what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University's Energy Institute, told the Associated Press.

But those considering investments based on the Utica's potential may want to pause and consider the shale industry's long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn.

“The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons.

Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.

Burning Through Cash

Companies like Chesapeake Energy, the nation's second largest producer of natural gas and one of the most aggressive advocates of the shale rush nationwide, have been hammered hard by low oil prices and high costs in 2015.

“Chesapeake is expected to post a net loss of $3.18 billion this year, based on the average of eight analysts’ estimates compiled by Bloomberg. That would be the company’s steepest annual loss since 2009,” Bloomberg reported last week as Chesapeake announced that it was eliminating dividends paid out to investors.

“Only twice in the past two decades has the second largest gas producer reported positive cash flow,” Bloomberg added.

In other words, even while the price of oil and gas touched record highs, Chesapeake and others in the industry were burning through cash. All told Chesapeake Energy's market capitalization has plunged from highs over $21 billion in 2011 to just $5.9 billion today – meaning that investors in the company have lost billions of dollars over the past four years.

And now, as oil prices have dropped to below $50 a barrel, down from highs of roughly $140 in 2008, a wave of bankruptcies and stock price collapses has begun to sweep the industry, with many analysts predicting more hard times to come.

“The top 60-odd shale firms are making a return of roughly zero on the swollen stock of capital they employ,” the Economist reported earlier this month.  “With less cash flowing in, shale firms need to slash their investment by over two-thirds if they are to balance their books.”

For those living in heavily drilled areas, job losses might be the most visible signs of the industry's downturn. Two of the largest oilfield services companies, Halliburton and Baker Hughes, have cut over 25,000 jobs — more than double what they projected in February — due to the downturn. Consol Energy recently announced it would lay off 10 percent of its workforce. And Weatherford International recently said it would lay off 11,000 workers, 10 percent more than it had projected.

Hype and Downgrade

Wildcatters and their supporters have rarely been shy about promoting the economic potential from drilling. Aubrey McClendon, former CEO of Chesapeake Energy, ousted over undisclosed risk-taking and loans revealed by investigative reporters at Reuters, once called the Utica the “biggest thing to hit Ohio since the plow.”

But under McClendon, Chesapeake Energy's business model was in no small part based on ginning up interest in one shale play after another, then selling that acreage to other drillers at a vastly increased price.

In comments during 2008 conference call, when Chesapeake's stock was collapsing, McClendon was unusually blunt about how Chesapeake worked.

“That includes a part of our business model that apparently some people still have a hard time understanding, and I think there are two ways to make money in the business. One is to drill wells and just have the gas produce out over time. But there are other ways as well, and that is doing these various asset monetizations. I think when we’re through with 2008, you will see that our company will have monetized somewhere between $10 billion to $12 billion of assets during the year including drilling carries and would have an indicated profit margin if you will on that of about $10 billion. I can assure you that buying leases for X and selling them for 5X or 10X is a lot more profitable than trying to produce gas at $5 or $6 mcf,” Mr. McClendon said.

In other words, the country's second largest producer of natural gas was in the business of flipping acreage — giving it a strong incentive to predict incredible amounts of production from the land it leased.

Meanwhile, federal estimates of the amount of shale gas and oil that companies have the technology to tap have repeatedly suffered major downgrades.

Last year, the federal government slashed its projections for California's Monterey shale, concluding that the technology to tap it didn't exist, wiping out two thirds of the nation's predicted shale oil resources. In 2011, the USGSadmitted it's estimates for the Marcellus shale were also unrealistic, leading it to conclude only 84 tcf could be drawn from the Marcellus, down 80 percent from its prior prediction of 410 tcf.

This time around, a close look at the WVU study highlights several reasons to believe the hype about the Utica is overblown, the Post Carbon Institute's David Hughes concluded.

“The WVU assessment of technically recoverable resources in the Utica is incomplete as presented and wildly optimistic compared to the earlier USGS assessment and compared to likely well performance,” he wrote in a July 21 review. “Although the WVU report does provide a valuable roundup of pertinent geological data, its assessment of technically recoverable resources should not be viewed as credible.”

The 782 trillion cubic feet is 1947% higher than the estimates published by the USGS in 2012, Hughes pointed out, adding that to reach its conclusions, the WVU study assumes an average well will produce roughly 12 times as much gas as the USGS predicts and would require so-called “sweet spots,” places where the highest-producing wells can be drilled, to extend much further than the USGS concluded.

There's no question that the shale industry can drill some “monster wells,” or wells that produce enormous gushers of gas. EQTannounced on July 23rd that it had completed the most productive Utica shale well ever drilled, in a town in Greene County, PA.

But for all the excitement around that monster well, it's worth keeping in mind other Utica results announced by the same company earlier this year: in February, EQTwrote off all of its Ohio Utica acreage, taking an impairment of $162 million, because the amount of gas its wells produced over their lifetimes was “significantly below expectations.”

Yesterday's Bust

The growing losses for drillers have by no means stopped the fracking rush and may in fact be bad news for those living near wells currently being drilled. Companies and their contractors are under enormous pressure to cut costs — and these shortcuts may mean that “best practices” are less likely to be followed.

Compared to others in the oil and gas industry, the shale industry has been aggressively slashing its costs. “North America’s shale industry has seen the biggest cost declines, of 25% to 30% compared to 2014 levels, Espen Erlingsen at Rystad Energy estimates,” the Wall Street Journal reported last month.

But it's not clear that state environmental regulators, who must now oversee an industry where incentives to take shortcuts are stronger, are prepared to adjust.

In fact, the recent slump has meant that environmental regulators are under greater financial pressure themselves, especially in states that depend on the industry to fund much of the cost of oversight.

“[The Pennsylvania Department of Environmental Protection] uses permit fees, fines and $6 million each year from the state’s impact fee levied on Marcellus Shale and other unconventional wells to pay for the oil and gas program’s roughly $21 million annual budget. That means the program has not had to rely on the fickle state general fund budget process each year to support its work,” the Pittsburgh Post-Gazette reported earlier this year. “But now its primary funding source has turned out to be equally fickle, as natural gas operators have responded to low oil and gas prices by reducing their capital spending and improving efficiency by coaxing more gas from fewer wells.”
  

Photo Credit: One hundred dollars in fire, via Shutterstock.

The Public Accountability Initiative (PAI) has published a timely “back to school” report concluding that “frackademia” is alive and well at U.S. universities. 

While only focusing on the people and money behind five recent studies, PAI's report sits within a much broader universe of research in its Frackademia Guide. The new report serves as an update of its February 2015 report titled, “Frackademia in Depth,” a title poking fun at hydraulic fracturing (“fracking”) front group Energy in Depth (which did not react kindly to its report).

As PAI points out in the new report's introduction, the results of many recent science studies (some funded by the industry) have tarnished the reputation the industry spends so much money aiming to keep shiny. These include studies on fracking's climateimpacts and health impacts, environmental justice issues associated with fracking, among others.

Given that backdrop, the oil and gas industry has swept in and funded fresh studies whose outcomes were more favorable — aka “frackademia” — on topics ranging from fracking's groundwater impacts, environmental impacts and economics. 

Rick Berman, Tim Considine

Among the most compelling findings in the PAI investigation is that Rick “Dr. Evil” Berman, infamous for creating industry-funded front groups in many policy arenas via his consulting company Berman & Company, has gotten into the frackademia game.

The Berman connection becomes clear when investigating the men behind the curtain of a study published in September 2014 titled, “Economic and Environmental Impacts of Oil and Gas Development Offshore the Delmarva, Carolinas, and Georgia,” which makes the case for offshore drilling in the Atlantic. As PAI explained, it was funded by Interstate Policy Alliance, “a project of the Employment Policies Institute.”

What's Employment Policies Institute? A Berman & Company front group.  

“Though Berman and Company does not disclose the identities of its clients, the firm and its network of front groups have recently begun attacking fracking opponents and climate change regulations, suggesting it has been retained by the oil and gas industry,” explained PAI.

view this map on LittleSis

Just as important as Berman, in this case, was the author: Timothy Considine. Considine has been embroiled in other frackademia scandals, including a 2010 study eventually retracted and reissued by Penn State University after it was revealed that he didn't disclose its funder, the Marcellus Shale Coalition lobbying organization.

He's actually featured twice in the PAI report. The other recent Considine frackademia example came in the form of a study titled, “The Economics Impacts of the Proposed Natural Gas Severance Tax in Pennsylvania,” funded by the American Petroleum Institute. 

That report predicted brutal impacts for Pennsylvania's economy if its legislature adopts a severance tax for those fracking in the state's Marcellus Shale. 

Harvard, Syracuse

Harvard Business School and Syracuse University also feature prominently in PAI's report. The Harvard Business School example, in particular, serves as almost a perfect case study of how frackademia works in action. 

“America’s Unconventional Energy Opportunity,” the title of Harvard's report published jointly with Boston Consulting Group in June 2015, was featured in an opinion article by The New York Times writer David Brooks and in an uncritical article distributed to newspaper wires worldwide by Reuters.  

Like a prominent 2013 Environmental Defense Fund-convened study on the climate change impacts of fracking, the steering committee of the Harvard study was a who's-who of people with industry ties. 

Image Credit: Public Accountability Initiative

As PAI pointed out, co-author “David Gee, a [Boston Consulting Group] managing partner, has worked for the energy industry for more than 30 years, with stints at Baker Hughes, PG&E, and AES Corporation.”

Another co-author not mentioned in PAI's report is Michael Porter, a faculty member of the Harvard Business School and formerly of the Monitor Group, a prominent consulting firm that went out of business in November 2012. Monitor Group has been involved in undisclosed pay-for-play before, conducting de facto shadow public relations work for former Libyan dictator Muammar Gaddafi.  

Energy in Depth also stars in PAI's report in the form of a Syracuse University study on fracking and groundwater contamination that served as a counter of sorts to earlier Duke University fracking groundwater contaminationstudies. 

That study was promoted by both EID and Natural Gas Now, the latter often featuring the work of Tom Shepstone, a former EID employee and current industry consultant. As it turns out, the study was covertly funded by Chesapeake Energy, though the co-authors claimed they had “no competing financial interest” in any entities potentially impacted by the study's results. 

Lead author Donald Siegel“had failed to disclose that, in addition to providing the data upon which his conclusions were based, oil and gas driller Chesapeake Energy had also funded the study and paid Siegel directly,” wrote PAI.

“Further, one of Siegel’s co-authors, Bert Smith, is a former Chesapeake employee who now works for Enviro Clean, a firm that consults for Chesapeake Energy. While Smith’s employment at Enviro Clean was noted when the study was published, the fact that his employer works for Chesapeake Energy was not.”

On at least one instance, PAI pointed out, Siegel actually wrote an article on EID's website.

Tobacco, Climate Denier Playbook

As highlighted many times in the report, journalists often take press releases from universities and write stories about these studies without following the money.

“Since the tobacco industry pioneered the use of compromised scientists to sow doubt about the harmful effects of smoking, corporations have employed a complex of industry-funded academic institutes, public relations outfits, lobbying firms, and independent consultants to provide seemingly independent support for their lines of business,” explained PAI.

PAI has done a great public service by naming names and doing the work journalists all too often fail to do to reveal conflicts of interest.
  

Photo Credit: Jannis Tobias Werner | Shutterstock

Aubrey McClendon, former CEO of hydraulic fracturing (“fracking”) giant Chesapeake Energy and current CEO of American Energy Partners (AEP), has signed a joint venture with a private equity firm owned by former Mexico president Vicente Fox. 

In a joint press release, AEP and EIM (Energy and Infrastructure Mexico) Capital announced a “long-term, landmark partnership to explore the vast exploration and development opportunities offered by Mexico's abundant oil and gas energy resources.” The deal serves as another case study of U.S.-based companies cashing in on the Mexico energy sector privatization policy the U.S. State Department helped make possible under both the Obama Administration and the Bush Administration.

EIM Capital was “founded in anticipation of Mexico's historic Constitutional Reform of 2013,” according to its website.

“This is a significant vote of confidence in the Energy Reform program championed by current Mexican President Enrique Pena Nieto, and in the myriad possibilities offered by Mexico's unconventional resources,” hailed the press release. Among those resources: Mexico's side of the Eagle Ford Shale basin.

McClendon, one of the main characters featured in the book “The Frackers,” also recently announced AEP's entrance into Australia.

A State Department diplomatic cable published by Wikileaks shows that Fox, president of Mexico from 2000-2006, helped pave the way for the constitutional amendments passed in December 2013, which resulted in the privatization of Mexico's energy sector. The amendments opened up the country for international companies to sign joint ventures with state-owned oil company Petróleos Mexicanos (PEMEX).

And Fox, like others in the U.S., has since passed through the government-industry revolving door to profit from the policy apparatus he made possible.

The Fox Cable

An October 3, 2005 State Department diplomatic cable about Fox's first visit to Alberta, Canada stated that Fox introduced a “plan for expanding the organization’s role, including a new provision for energy.” 

“[T]he Mexican Trade Consul in Calgary…[said] there continues to be much interest in investing in Mexico's energy sector,” reads the cable. “The Trade Consul said it is 'painful' to let Mexico's resources sit in the ground.”

Eventually that “pain” receded, with Mexico's energy sector totally revamped in the decade that would follow. Fox reacted to the EIM-AEP deal with elation.

“This is a major opportunity for Mexican energy production,” Fox said in the press release. “We look forward to working closely with the Mexican government to advance this monumental project and enhance Mexico's current energy policy.” 

Royalty Ripoff?

One of the promising aspects of Mexico's energy sector privatization package — from the vantage point of the oil and gas industry and capital investment firms — is the lower amount of royalty payments due to landowners, as compared to in the U.S. 

Fox spoke of “Mexico’s cheaper labor costs and the government’s willingness to accept less royalties than U.S. landowners would make drilling cheaper in Mexico than in Texas,” in an October 2014 Dallas Morning News article. “The details are still being finalized, but EIM executives said the government would accept a sliding scale on royalties between 11.5 percent and 15 percent, depending on the price of oil.”

Shale gas producers in particular, such as McClendon's AEP, will benefit from a discount handed to them in Mexico as a result of the constitutional amendments. The logic behind the discount, explained the Brookings Institution, is due to higher capital investment costs associated with fracking.

Chesapeake Energy is currently mired in a class-action lawsuit in Texas for allegedly short-changing landowners on royalty payments. And Jefferson County, Ohio landowners sued AEP subsidiary American Energy-Utica in June in another class-action lawsuit filed by 50 landowners, alleging much the same.

Mexico may be the perfect frontier for McClendon, who has made a career out of “land grab” as a business plan and preferring to make money by flipping over land.

Perhaps it's only appropriate, then, that McClendon has crossed the border despite the fact it remains unclear when bidding will actually take place for shale drilling in Mexico, which according to the country's energy secretary Joaquin Coldwell has been “suspended…pending a future evaluation.”
  

Photo Credit: Wikimedia Commons

The ongoing push to lift the ban on exports of U.S.-produced crude oil appears to be coming to a close, with Congress introducing a budget deal with a provision to end the decades-old embargo. 

Just as the turn from 2014 to 2015 saw the Obama Administration allow oil condensate exports, it appears that history may repeat itself this year for crude oil. Industry lobbyists, a review of lobbying disclosure records by DeSmog reveals, have worked overtime to pressure Washington to end the 40-year export ban — which will create a global warming pollution spree.

Image Credit: U.S. House of Representatives

Congress has introduced four oil export-promoting bills in the past year, all of which received heavy lobbying support from the industry. Language from those bills, as with a bill that opened up expedited hydraulic fracturing (“fracking”) permitting on public lands in the defense appropriations bill last year, is inserted into the broader budget bill. 

So without further ado, meet some of the lobbying and big money interests that propelled these bills forward. 

“Changing Crude Oil Market Conditions”

The push to repeal the oil export ban gained momentum throughout 2014 and culminated with the Obama Administration partially lifting the ban oil condensate. Before that partial repeal, a wholesale ban lift attempt ensued in Congress via H.R. 5814, clunkily named “To adapt to changing crude oil market conditions.”

H.R. 5814 mandated that the “United States should remove all restrictions on the export of crude oil, which will provide domestic economic benefits, enhanced energy security, and flexibility in foreign diplomacy.”

Companies such as Anadarko Petroleum, Marathon Oil and HollyFrontier Corporation all put their best foot forward in lobbying for the bill. Anadarko paid Robert Hickmott and W. Timothy Locke — both of whom passed through the government-industry revolving door — to do the job. 

Take Two

Failing to pass in 2014, climate change denying U.S. Rep. Joe Barton (R-TX) re-introduced a bill by the same namesake as H.R. 5814 again in February 2015, now with a new bill number: H.R. 702.

From an oil and gas industry point of view, Barton was a fitting sponsor of the bills as someone who has taken close to $2 million in campaign contributions from the oil and gas industry throughout his political career. Barton also has $50,000-$100,000 in investments in fracking industry giant EOG Resources.

H.R. 702 passed with a 261-159 vote count in the U.S. House of Representatives in October but has yet to move through the U.S. Senate. 

Far more companies lobbied for the bill this time around the block.

Image Credit: OpenSecrets.org

Among them is ExxonMobil, the news these days mostly for the “Exxon Knew” climate change denial scandal and the ongoing New York Attorney General's Office investigation.

Exxon's oil exports lobbyist armada includes former U.S. Senator Don Nickles (R-OK) and Majority Leader and U.S. Sen. Mitch McConnell (R-KY)'s former chief of staff Michael Solon.

The fracking lobby, America's Natural Gas Alliance (ANGA), also brought its lobbying clout to the forefront for the bill. ANGA lobbied for H.R. 702 in both quarters two and three. National Industrial Sand Association, the frac sand industry's lobbying group, also lobbied for the bill. 

Koch Industries front group Americans for Prosperity (AFP) also deployed a trio of lobbyists to advocate on behalf of H.R. 702. 

Crude Oil Export Act

Before Barton re-introduced “changing crude oil market conditions” in February, U.S. Rep. Michael McCaul (R-TX) used his first day on the job in 2015 on January 6 to introduce another related oil export ban repeal bill, Crude Oil Export Act (H.R. 156). 

ExxonMobil again had a seat at the lobbying table pushing for this bill's passage, as did Nickles and his lobbying group Nickles Group on the company's behalf. Koch Industries also tossed its hat in the ring to lobby for the bill, as did ConocoPhillips, Chesapeake Energy, Shell Oil, BP and others.

The industry-funded and lobbyist-run think tank and advocacy apparatus Bipartisan Policy Center (BPC) also lobbied for the bill during quarter three via its lobbying and advocacy 501(c)(4) wing, the Bipartisan Policy Center Advocacy Network.

All of the lobbyists BPC deployed to push lifting the export ban, a DeSmog review has revealed, passed through the revolving door and formerly worked as congressional staffers.

Financial disclosure records show that the sponsor of H.R. 156, U.S. Rep. Michael McCaul (R-TX) has millions of dollars invested in oil and gas companies ranging from ExxonMobil, Chevron, Marathon Oil, EOG Resources, Schlumberger, Halliburton, Shell Oil, Dominion and others. Throughout his decade-long political career, McCaul has taken nearly $400,000 in campaign money from the oil and gas industry. 

American Crude Oil Export Equality Act

On the Senate side, in May U.S. Sen. Heidi Heitkamp introduced the latest iteration of an oil export ban repeal bill called the American Crude Oil Export Equality Act (S.1372). Though the bill has not gained much traction, it has not been without a valiant effort by the oil and gas industry, with the same familiar company names rearing their heads once again.

Image Credit: OpenSecrets.org

The lobbying list for S.1372 includes Koch Industries, the Bipartisan Policy Center, Marathon Oil, Devon Energy, ExxonMobil, ConocoPhillips, Shell Oil, BP, ANGA, the American Petroleum Institute and others. 

Heitkamp bears similarities to other oil export ban lifting bill sponsors in that she also has taken large amounts of campaign contributions from the oil and gas industry throughout her political career. In her nascent two-year long political career as a U.S. Senator, Heitkamp has taken over $186,000 from the industry, her third biggest campaign contributor by category.

Refining Industry Big Money Flip

To date, the refining industry has situated itself as one of the most ardent opponents of oil exports besides the environmental community. That state of play changed, though, during the drafting stages of the budget bill.

Early on, news broke that a drafted proposed budget provision introduced by U.S. Sen. Tom Carper (D-DE) called for a trade-off between oil exports and subsidies going to oil refineries, otherwise known as a win-win for the oil and gas industry.

Carper, who devotes a portion of his website to the environment and climate change, is up for re-election in 2016 and one of his biggest donors so far is private equity firm giant Blackstone Group. Among many other oil and gas industry assets it finances, Blackstone serves as the financier of PBF Energy, the company that owns a massive Delaware City-based oil refinery.

Image Credit: OpenSecrets.org

An examination of Carper's financial disclosure records shows he has upwards of $30,000 invested in refining giant Valero Energy — from whom PBF Energy bought a New Jersey-based refinery in 2010 — and upwards of $15,000 invested in BP (owner of the massive BP Whiting tar sands refinery in Whiting, Indiana).

“There are negotiations to make sure that the unintended consequences to dozens of refineries across the country are avoided,” Carper told The Hill on December 10. “The idea is that if the oil export ban is going to be lifted, we want to be sure there’s no collateral damage to refiners in this country.”

Environmental advocacy group Friends of the Earth took umbrage with Carper's statement.

“Big Oil is already awash in billions worth of subsidies every year and Sen. Carper wants to send them even more,” Lukas Ross of FOE told Delaware's News Journal. “Instead of pushing for extra goodies for his refining industry pals, Sen. Carper should oppose any climate-denying deal that would lift the crude oil export ban.”

Carper did not respond to DeSmog's request for comment, but it appears his provision did not make it into the proposed budget bill. Instead, another pro-petroleum refinery provision made it into the budget, buried at the very end on pages 2008 and 2009. 

Titled “Treatment of Transportation Costs of Independent Refiners,” the section offers a tax incentives for the transportation costs of getting petrochemical products to and from independent refineries in the U.S.

McKibben: “Hypocrisy”

In an opinion piece published by The Hill, 350.org founder and author Bill McKibben decried what he called the “hypocrisy” of the possibility of the signing of this bill, pointing out the post-Paris timing of it.

“If you were wondering how seriously world leaders took the obligations they imposed on themselves in Paris over the weekend, the early returns would indicate: not very,” wrote McKibben. “Barely 48 hours after all the back-patting at the climate conference had ended, word leaked out in Washington that the administration and Congress were preparing to lift the 40-year ban on oil exports, a major gift to the oil industry.”

Utilizing the #KeepTheBan hashtag on Twitter, groups such as the Center for Biological Diversity and Food and Water Watch are pushing for citizens to call the White House and congressional members and tell them not to lift the ban.

Photo Credit: Jirsak | Shutterstock

Pennsylvania's beleaguered top prosecutor has filed a civil action against two of the nation's largest oil and gas companies, Chesapeake Energy and pipeline company Williams Partners LP, alleging that the companies defrauded over 4,000 property owners out of the royalties owed for shale oil and gas produced from their land.

“This alleged conduct amounts to a 'bait-and-switch,'” Attorney General Kathleen Kane said in a statement. “Pennsylvania landowners were deceived in thousands of transactions by a company accused of similar conduct in several other states,” she added, referring to Chesapeake Energy, which has faced class actions in Texas, Louisiana and Ohio over its royalty payments.

Chesapeake Energy, struggling to recover from a series of financial scandals, was able to raise over $5 billion dollars by gouging landowners nationwide and skimping on royalty payments, a ProPublica investigation concluded last year.

The state attorney general's office said that the lawsuit is expected to help Pennsylvania landowners recover “tens of millions” of dollars in restitution, plus punitive damages.

The new legal action, the product of a nearly two-year long investigation, comes at a time when Attorney General Kane herself faces felony charges in an unrelated matter and is holding office despite a suspended law license, raising questions about her office's capacity to enforce the state's consumer protection laws while also facing its own legal struggles.

For years, thousands of farmers, homeowners and others have complained to their elected officials about allegedly deceptive leasing practices they encountered in dealing with landmen representing Chesapeake Energy and many other drillers during the rush to snatch up drilling rights in areas with little history of oil and gas exploration during the shale gas rush.

At least two other class action lawsuits have been filed in Pennsylvania alleging that landowners explicitly negotiated payment terms that were later ignored by the gas companies. The attorney general's new lawsuit seeks to intervene in the settlement of one such case, valued at over $11 million.

Currently, a second wave of landmen from the oil and gas industry is sweeping across the U.S., seeking the rights to build pipelines to carry shale oil and gas to consumers. Many landowners have reported high pressure sales tactics, like telling landowners that if they refuse to sign, the company will simply seize the right to the land through eminent domain.

The Pennsylvania attorney general's lawsuit focuses in part on the high pressure sales tactics – including making “take it or leave it” offers and leaving unreasonably short times to make decisions – that played a role in convincing homeowners, farmers and others to sign over their oil and gas rights on Chesapeake's terms.

The new lawsuit seeks punitive damages of at least $1,000 for each unauthorized deduction as well as payment of the royalties that the state says are owed to over 4,000 landowners. Chesapeake engaged in self-dealing, artificially inflated production charges deducted from landowners royalty checks, and deliberately miscalculated the amount of money it paid out, the lawsuit asserts.

“As a result of the misrepresentations, Chesapeake and other defendants allegedly took deductions and, in some cases, made retroactive deductions of post-production expenses from royalty checks,” the attorney general's office wrote. “These practices occurred despite landowners' claims that their leases contained the necessary language to prohibit such deductions.”

As her office takes on a powerful industry, Attorney General Kane remains embroiled in a legal battle over allegations that she wrongfully leaked grand jury information to the Philadelphia Daily News and faces charges of obstruction of justice, official oppression and felony perjury. Her law license was suspended by the state's Supreme Court in September, but she has continued to hold office, assigning her duties that require bar membership to attorneys within her office. 

The lawsuit against Chesapeake is being prosecuted by lawyers from the anti-trust and consumer protection divisions of the attorney general's office, according to a statement from Kane's office. However, it is not clear to what degree Kane's own legal difficulties will affect her employee's ability to focus on further investigations into Chesapeake and other drillers across the state.

Leasing Regrets

The sales pitch from leasing agents who fanned out across large swaths of the U.S. was simple: there's oil and gas under your feet, and if you simply let us buy the right to drill it from you, we'll make you rich.

But once the gas started flowing, Chesapeake, the nation's second largest natural gas company and a handful of its business partners, refused to uphold their end of the bargain and deliberately engaged in complex financial transactions whose hidden purpose was to keep royalty payments out of the hands of landowners, according to the attorney general's suit.

For years, residents have reported that something seemed shady about their royalty payments.

“There’s never a clear delineation of what those costs are,” Mary Jane Foelster of Bradford County, PAtold State Impact in 2013. “I couldn’t begin to tell you what they are.

For Bradford County planning commissioner Glenn Aikens, signing a lease with Chesapeake wound up costing him more than he was paid, he told DeSmog last year as he showed a copy of a royalty check for $0.10, sent by the company as his share of the income from the three shale gas wells drilled on his 359-acre farm after the company subtracted production expenses.

Aikens and Foelster are hardly alone. Kane's office said that they focused on their efforts the heavily-drilled northern part of the state and on Chesapeake Energy, but that their lawsuit is likely to grow.

“We have identified at least 4,000 landowners, but we expect the number could be considerably higher,” Jeffrey Johnson, a spokesperson for the attorney general told U.S. News and World Report. “We're hopeful that today's filing will lead other affected landowners we have not spoken with to share their concerns with the office.”

Boom and Bust

The complaints from landowners have often extended to other drillers, not simply Chesapeake Energy.

The Marcellus Shale Coalition, an industry trade group, pointed to the financial pressures faced by drillers and said that leasing problems were far from systemic. “Mineral owners are feeling the pinch of persistently low commodity prices…” the Marcellus Shale Coalition said in a statement according to Natural Gas Intelligence. “It's important to recognize that post-production related issues – which have been extremely localized and not widespread – are being actively addressed in the courts where contract matters should be addressed.”

A Chesapeake spokesman denied that the company had done anything wrong. “We strongly disagree with Attorney General Kane's baseless allegations and will vigorously contest them in the appropriate forum,” spokesman Gordon Pennoyer said in a statement.

The charges come at an already difficult time for the driller. Chesapeake Energy's stock has plunged in recent years, recently testing new lows of less than $4.00/share, a sign that Wall Street investors see little to like about the company's financial prospects.

Aubrey McClendon, the embattled former CEO and co-founder of Chesapeake Energy, has announced his entrance into Argentina to begin hydraulic fracturing (“fracking”) in the country's Vaca Muerta Shale basin.

Though he retired as Chesapeake Energy's CEO back in 2013 in the aftermath of a shareholder revolt, McClendon wasted little time in creating a new company called American Energy Partners (AEP). AEP, like Chesapeake, has found itself mired since its onset in legal snafus over its treatment of landowners. With AEP not getting a red carpet roll-out in the U.S., McClendon has looked southward for other lucrative business adventures.

DeSmog reported in September that McClendon has also teamed up with a private equity company affiliated with former Mexican president Vicente Fox to begin tapping into Mexico's portion of the Eagle Ford Shale basin. We also reported that he has begun doing business in Australia.

All of those countries have something in common that makes them different from the U.S.:  lax royalty and land deal laws.

As McClendon boasted in an investor call — and as Chesapeake formerly acknowledged on a portion of its website, since taken down — the company chose the land grab as a key part of its business model.

Mexico, Australia and Argentina are still in the “land grab” phase of development, with zero production scale fracking taking place in any of the three countries.

AEP attempts to preempt “land grab” charges on its website.

“We work hard to earn – and maintain – your trust,” writes AEP. “We practice open, honest communication with our owner partners to strengthen those partnerships forged in mutual trust.”

Banana Republic Land Laws

In Mexico, unlike in the U.S. in which in most states' landowners own the minerals underneath their land, the government maintains mineral rights. The same goes for Australia.

Argentina's government, in a presentation posted online by the Undersecretariat of Mining, brags about how its legal landscape permits foreign investors and companies to come in and commandeer land.

Image Credit: Argentina Undersecretariat of Mining

McClendon did not say so overtly, but it appears “land grab” could be a key part of his plans in Argentina moving forward. 

“[W]e intend to bring US-style shale drilling and operating expertise, completion techniques and cost structure to the Vaca Muerta, which we believe will prove transformative for the play,” McClendon stated in an AEP press release announcing the deal.

There is a term for this “cost structure” with roots in how U.S.-based companies have attempted to do business historically in Latin America: banana republic. Will history repeat itself in the Vaca Muerta?

Photo Credit: PromesaArtStudio | Shutterstock

It was a tumultuous week in the world of hydraulic fracturing (“fracking”) for shale oil and gas, with a few of the biggest companies in the U.S. announcing temporary shutdowns at their drilling operations in various areas until oil prices rise again from the ashes.

Among them: Chesapeake Energy, Continental Resources and Whiting Petroleum. Chesapeake formerly sat as the second most prolific fracker in the U.S. behind ExxonMobil, while Continental has been hailed by many as the “King of the Bakken” shale basin located primarily in North Dakota.

Halliburton too, the drilling services goliath and namesake of the “Halliburton Loophole” exempting the industry from U.S. Environmental Protection Agency (EPA) enforcement of the Safe Drinking Water Act as it applies to fracking operations, has recently announced it will cut 5,000 drilling jobs globally (8 percent of its workforce).

“Continental Resources Inc., the shale oil pioneer controlled by billionaire wildcatter Harold Hamm, halted all fracking in the Bakken shale formation in the U.S. Williston Basin after posting its first annual loss since the company’s public debut in 2007,” wrote Bloomberg. “Continental said it has no fracking crews currently working in the Bakken. The company continues to drill there, focusing on areas with the highest returns, but will leave most wells unfinished this year.”

Chesapeake's immediate future is just as bleak, if not more so, and it will halt drilling in the Marcellus Shale, Utica Shale, Eagle Ford Shale and elsewhere. The company sits as the top-producing driller in both the Utica and the Marcellus.

Whiting, the most prolific shale oil producer in the Bakken, will halt all of its fracking in the near-future. The company, 83 percent of whose produced oil comes from fracking the Bakken, will simultaneously slash its spending budget by 80 percent. 

North Dakota and Oklahoma, with economies largely dependent on revenues generated from oil and gas drilling, have both projected $1 billion budget shortfalls for the forthcoming budget cycle. Things are even worse in Alaska, with a pending $3.5 billion budget shortfall.

And if the sordid news for the frackers were not bleak enough on the bottoming out of oil prices, David Hughes — a former oil industry geoscientist and current fellow with the Post Carbon Institute — recently delivered sworn testimony to the North Carolina Utilities Commission that shale gas production will peak in 2017 nationwide and then begin a rapid productivity decline. 

But low oil prices, while temporarily shutting down drilling projects, do not automatically equate to an ecological victory. Naomi Klein, author of several books including “This Changes Everything: Capitalism vs. The Climate,” addressed this about a year ago in an interview published by Grist.

“It is not preordained that low oil prices will either hurt or help the climate movement,” said Klein. “If we do nothing, then it’s more likely that low oil prices will work against sensible climate action, just for simple economic reasons. When oil is cheap, people feel able to buy more of it. Already we’re hearing these stories, like the comeback of the SUV.”

Klein said that's why she believes advocates must “kick oil while it's down” and not remain complacent. 

“There are various reasons why, if we get the right set of incentives in place — both political and economic — it can be a really, really good time to get off fossil fuels and push very aggressively toward a decentralized, renewables-based economy,” Klein remarked.
  

Last year, a wave of bankruptcies swept the oil and gas drilling industry as oil prices collapsed, leading to layoffs, lost revenues for communities, and turning former boomtown-era mancamps into ghost towns in places like North Dakota's Bakken shale.

Even before oil prices plunged, the price of shale gas was already under siege from a domestic supply glut caused by the shale drilling frenzy. All told, prices dropped from its all-time high of over $15/mcf when the shale boom began in 2005 to $1.57/mcf — the lowest levels since 1998 — in March.

For shale exploration and production companies, however, the conventional wisdom has held for years that there is a light at the end of the tunnel — gas exports.

Unlike oil, natural gas is difficult to transport across oceans. To ship gas by tanker, it needs to be cooled to below -256 degrees Fahrenheit, an expensive and technologically challenging process, requiring the construction of multi-billion dollar Liquefied Natural Gas (LNG) import and export terminals.

Once those terminals were built, the international market could soak up the shale gas supply glut, allowing drillers to make handsome profits for their investors and to keep rig workers employed for years to come, shale boosters predicted.

In February, the first ever export of LNG from shale gas reached Brazil, leaving from Cheniere Energy's Sabine Pass terminal in Louisiana. Last month, a second shipment of American shale gas reached India — but that gas sold for just roughly $5/mcf at the Dabhol LNG import terminal there.

In other words, unfortunately for the shale drilling industry, those new shale exports are entering a world market that is also suffering from its own sudden collapse in prices.

LNG prices hit 18-year lows this month, in part due to collapsing demand from China and other Asian countries for commodities and in part because other countries have also invested heavily in building export facilities at the same time as the U.S..

“U.S.LNG will materialize at a time when the biggest market (Japan) is witnessing a demand reduction and when supply is growing again massively thanks to Australia,” said Thierry Bros, senior gas analyst at Societe Generale, told Reuters in October. “This is the worst possible timing for this new LNG that has no dedicated market.”

Before the shale rush, companies spent billions building import terminals, only to suddenly face a domestic supply glut that abruptly made American-drilled gas cheaper than LNG from overseas. “Ten years ago, we thought we were facing a gas shortage and we built all of these facilities to import natural gas,” Frank Wolak, a Stanford University energy expert, told the Los Angeles Times in 2014. “Now they are all sitting idle.”

Now, it seems, the LNG industry may once again be facing a sudden and unexpected reversal.

“Just two years ago, exporting LNG from the U.S. sounded like a lucrative opportunity for shale drillers. Buyers in Northeast Asia were paying up to $20 per million British thermal units more than spot Henry Hub gas prices,” Bloomberg reported in March. “That premium has collapsed, this week trading around $2.70.”

And since the process of liquefying the natural gas and shipping it carries additional costs — potentially enough to eat through all of the higher price that LNG commands in some international markets — that's bad news for the shale drilling industry, already under enormous financial pressure from the collapse of oil prices by roughly two thirds since 2014.

Since the start of last year, over 50 North American oil and gas producers have filed for bankruptcy. But the oil and gas has continued to flow (in part because even when drillers go bankrupt, their existing wells are usually left in production by their creditors).

Those who expect that LNG exports will reverse the fortunes of shale gas drillers may be in for a rude awakening. “The low and volatile energy price environment is forcing developers to tighten belts and we can expect more proposed projects to delay investment decisions,” James Taverner, a Tokyo-based analyst at IHS Inc., told Bloomberg. “There are far more LNG projects competing to go ahead than the market can absorb.”

That's a very different story than the one oil and gas industry lobbyists are pushing in Washington D.C, where some have claimed that nearly a half a million jobs could be supported by gas exports. “LNG exports could contribute up to 452,000 jobs nationwide between 2016 and 2035 and add up to $73.6 billion annually to the GDP, according to an ICF International study,” Jack N. Gerard, president and CEO of the American Petroleum Institute wrote in February. “Policies currently pending in Congress to expedite and establish greater certainty in the LNG export permitting process are essential to further capitalize on our position as the world’s leading natural gas producer.”

The reality? The prospects from LNG have soured so fast that shale gas sellers may struggle to find buyers at prices that will allow them to turn a profit. “Regulators this month rejected Veresen Inc.’s request to build a terminal in Oregon partly because it couldn’t prove there was enough demand,” Bloomberg reported in March.

Of course, some analysts saw the supply glut and price collapse coming. “The latest free lunch being peddled involves exporting U.S. natural gas. Don't be surprised if it evaporates,” Wall Street Journal reporter Liam Denning warned in 2012, explaining that domestic gas futures ran at $3/mcf, while the international market paid as high as $17/mcf. “That spread is why companies such as Cheniere Energy are racing to build plants to export U.S. gas. But if '$3 in, $17 out' sounds too good to be true, that is because it is. While the economics of exports can make sense, they are no slam-dunk.”

The Heartland Institute, best known for its climate denying extremism, has also been hyping LNG exports. “The export of U.S.-produced natural gas marks the emergence of America as an energy-rich nation,” James Taylor, senior fellow with The Heartland Institute, wrote this week. (As DeSmog earlier reported, Heartland's “2012 Fundraising Plan” showed the pro-coal think tank planned to “raise funds from businesses with a financial interest in fracking” by “approach[ing] dozens of companies and trade associations that are actively seeking allies in this battle.”)  “For years, we behaved and suffered as an energy poor nation due to our poor political choices,” Mr. Taylor continued.

But the geopolitical leverage that the industry has touted in Washington D.C. will only emerge if American exports indeed can be delivered cheaper than gas out of, say, Qatar (currently the world's largest LNG exporter). “The fact that Qatar owns the value chain from start to finish allows it to have a level of efficiency that is going to be tough for other producers to match,” Allison Wood a Control Risks Group Ltd. official, told Bloomberg in January.

Of course, the paradox here for investors in U.S.LNG exports is that LNG terminals are notoriously time-consuming to construct – and a lot can change during that lead time. In March, a group of analysts at Wood Mackenzie warned that“average utilisation of USLNG export capacity between 2017-20 could vary from 54-100%” – in other words, that virtually half of the LNG plants expected to come online in the next few years could wind up mothballed, depending on what direction coal and gas prices swing.

On the other hand, the low LNG prices of today could be followed by sudden gas price spikes, if companies drop construction plans and LNG supplies run short over the long-run, Wood Mackenzie analyst Saul Kavonic told Bloomberg.

And that possibility makes LNG a risky bet for buyers as well.

Even the most seasoned investors have stumbled when trying to predict the prospects of natural gas. According to Forbes, famed investor Carl Ichan lost over $1 billion by placing a poorly-timed bet on Chesapeake Energy, America's second-largest supplier of natural gas, which has seen its stock price collapse from over $66 a share to single digit levels over the past eight years — in part due to the domestic supply glut that the company helped create.

The erratic swings of shale gas and LNG prices reflect the volatile and unpredictable nature of the oil and gas industry, calling into question the wisdom of building more fossil fuel infrastructure that could wind up trapping consumers into buying fuel that not only brings with it costly global warming impacts, but also a sticker shock when electrical and home heating bills arrive.

Of course, individual companies can protect themselves against volatility by inking long-term contracts — but experts say that the long-term market is becoming more difficult to predict, making both sides of the deal commitment-shy. When Reuters asked the owners of LNG plants under construction about their exposure to price-shift risks, only two out of the five companies said they had long-term agreements in place.

This uncertainty already has federal regulators concerned. In March, the Federal Energy Regulatory Commission refused to grant permits for the construction of the Jordan Cove LNG terminal planned in Oregon, in part because the company lacked contracts proving that it could sell that LNG. (On Friday, Veresen and the Williams pipeline company, which backed the Jordan Cove project, filed a request for a rehearing by FERC.)

Environmentalists in Texas immediately took note, saying that the Oregon plant's rejection showed that the adverse impacts on communities outweighed any public benefit from exports. “Rio Grande LNG is boasting about its non-binding contracts, and Annova and Texas LNG exude confidence that they will be able to sell their LNG overseas, but that’s clearly not enough for FERC approval, especially since we can show how damaging these projects would be,”  Jim Chapman, chair of the Lower Rio Grande Valley Sierra Club, said in statement when the Oregon permit was turned down.

Still, companies are pressing forward with an aggressive LNG buildout.

“As of December 4, 2015, the U.S. Department of Energy (DOE) had approved only 16 applications for permits to export liquefied natural gas (LNG) to non-free trade agreement nations,” the American Petroleum Institute indicates on its website, where they have created an online map showing the locations of each planned project. “There are currently 28 pending applications where U.S. businesses are seeking approval to build and operate terminals to process LNG for sales abroad.”
 
Photo Credit: LNG Carrier, by Herry Lawford, via Flikr.

Chesapeake Energy has sued its former CEO, Aubrey McClendon, for allegedly stealing its trade secrets in the months between his resignation and the formation of his new company, American Energy Partners. To defend itself outside of the courtroom, American Energy Partners has hired Edelman, the 'world's largest' and often controversial public relations firm.

Filed on February 17 at the District Court of Oklahoma County, Chesapeake's legal complaint alleges McClendon covertly took map-based data owned by the company in the time between resigning from the company and then officially leaving the company in early 2013. Chesapeake also alleges that he then utilized that same confidential data for business and investment decisions at his new startup in deciding which land to purchase for hydraulic fracturing (“fracking”) for oil and gas.

“AEP used confidential information and trade secrets stolen by McClendon from Chesapeake as a basis for their decision to acquire certain acreage in the Utica Shale Play,” alleges the lawsuit. “Further, in acquiring this acreage…AEP interfered with Chesapeake's business plans and its negotiations for its own acquisition of acreage in the Utica Shale play.”

Chesapeake Energy alleges that, before taking the data with him, McClendon asked a former company vice president of land, whose name is redacted in the complaint, to optimize and update the data.

Image Credit: District Court of Oklahoma County

McClendon also had his executive assistant print out maps for him that were until that point only stored on company computers, according to the legal complaint. Further, the complaint details, he blind carbon-copied (BCC'd) “dozens of emails” of those same maps to his personal email address for later use. 

Image Credit: District Court of Oklahoma County

That executive assistant (whose name is redacted) now serves as McClendon's executive assistant at American Energy Partners, according to the complaint. 

The assistant is one among close to 200 employees who left Chesapeake and joined American Energy Partners, where they work just down the street from Chesapeake's corporate headquarters. 

Edelman: McClendon Media Contact

In the news lately for landing a contract worth hundreds of millions of dollars to do PR over the past several years for American Petroleum Institute (then watching that contract expire), and working with TransCanada on a controversial plan to promote the Energy East tar sands pipeline, Edelman is listed as American Energy's media contact for the lawsuit.

At the bottom of the lawsuit website created by American Energy, the company lists Edelman's Ryan Colaianni as its media contact. According to his LinkedIn page, Colaianni works as a senior account supervisor for Edelman.

Image Credit: AELPvCHKlitigation.com

Like the gaggle of employees and “land grab” tactics McClendon has brought with him to American Energy Partners, he also used Edelman for public relations services while he served as the controversy-laden CEO of Chesapeake Energy.

According to an October 2012 press release, Chesapeake and General Electric utilized Edelman for communications efforts surrounding their joint compressed natural gas ”CNG in a Box” initiative. 

Furthermore, on her LinkedIn page Natalie (Wilson) Ilseng — an Edelman senior account executive — lists Chesapeake among her current or past clients.

Edelman also used to do PR work for the American Legislative Exchange Council (ALEC), described by its critics as a “corporate bill mill.” Chesapeake Energy in the past has sponsored an ALEC meeting.

McClendon Responds to Allegations

McClendon and his legal team, as well as American Energy Partners' investors, have already responded to the lawsuit in a very public way. They have all issued statements declaring full innocence, on top of creating a website dedicated to the case. 

“It is beyond belief that the company that I co-founded 25 years ago and where I worked tirelessly to build it into one of America’s largest and most successful oil and gas producers has now decided to add insult to injury almost two years to the day after my resignation by wrongly accusing me of misappropriating information,” McClendon declared in a press release.

“It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake.”

In other words, McClendon and his legal team have shown their cards. It appears they will argue in court that everything he took with him to American Energy Partners fits within the confines of contracts signed and agreed to by both sides.

American Energy Partners has published those contracts online, including the “Summary of Agreed Terms of Post Separation Founder Services Agreement,” the “Founder Separation and Services Agreement” and the “Founder Joint Operating Services Agreement.”

“Our filings will show that any information in Mr. McClendon’s possession is rightfully his pursuant to the terms of the agreements entered into between the parties,” Matthew Taylor, an attorney at Duane Morris and McClendon's lawyer, said in a press release. “We are 100% confident that Mr. McClendon and AELP will prevail in this dispute.”

Judge Patricia G. Parrish will preside over the case that will likely create headlines in the business and legal press for months to come.

If it goes their way, Edelman will help shape some of those headlines on behalf of American Energy Partners.

Edelman's Colaianni did not respond to questions from DeSmogBlog at the time of publication.

Photo Credit: Matthew Staver/Bloomberg via Getty Images

In 2010, the Environmental Protection Agency (EPA) launched an ambitious and highly consequential study of the risks that hydraulic fracturing, or fracking, poses to American drinking water supplies.

“This is about using the best possible science to do what the American people expect the EPA to do – ensure that the health of their communities and families are protected,” Paul Anastas, Assistant Administrator for the agency's Office of Research and Development, said in 2011.

But the EPA's study has been largely shaped and re-shaped by the very industry it is supposed to investigate, as energy company officials were allowed to edit planning documents, insisted on vetting agency contractors, and demanded to review federal scientist's field notes, photographs and laboratory results prior to publication, according to a review by DeSmog of over 3,000 pages of previously undisclosed emails, confidential draft study plans and other internal documents obtained through open records requests.

Company officials imposed demands so infeasible that the EPA ultimately dropped a key goal of the research, their plans to measure pollution levels before and after fracking at two new well sites, the documents show.

All told, the documents raise serious questions about the study's credibility and they highlight a certain coziness between the EPA and Chesapeake Energy, one of the most aggressive oil and gas companies in the shale gas rush.

“[Y]ou guys are part of the team here,” one EPA representative wrote to Chesapeake Energy as they together edited study planning documents in October 2013, “please write things in as you see fit”.

Chesapeake took them up on the offer.

Company officials repeatedlypushedEPA to narrow the scope of the national study to focus exclusively on the fracturing stage, the documents show, even though the agency had already announced that the study would include drilling, wastewater disposal and other parts of the process (times when water contamination can often occur).

“It appears the EPA has extended the scope of the study to include all development activities,” a company representative wrote, objecting to language used in study plans in October 2013. “CHK recommends that the EPA focus only on hydraulic fracturing.” CHK refers to Chesapeake Energy.

Though it is not clear whether Chesapeake's attempts to wordsmith were adopted by the EPA, the company did successfullypressure the agency to start its baseline testing at a Chesapeake site later in the oil and gas extraction process, after drilling was completed.

The reason this matters to the public is that it meant that EPA's tests would not be able to spot problems that emerged during the stages before the actual fracking stage, effectively narrowing the scope of the research.

Read also: EPA's National Study into Fracking Narrowed as Key Goals Fall by Wayside Due to Industry Pressure

In a sort of death-by-a-thousand lashes approach, the company created other delays in the study.

For example, EPA's plans to focus on a Chesapeake site in the Haynesville Shale were put in jeopardy when the company decided to move forward with drilling before the EPA would be able to take its baseline testing.

“We are disappointed that all our collective work associated with that site cannot be accomplished based on these documents,” Chesapeake wrote to the EPA on February 6, 2012, “but will nonetheless work with you to find another prospective site.” A draft EPA statement asserted that this would not affect the study's overall timing – but the agency went on to miss the deadline described in that document.

Chesapeake next used their ability to edit the documents to raise additional objections that ultimately led the EPA to cancel their testing plans altogether.

“Given the current schedule, there does not appear to be enough time to capture the seasonal variation in sample characteristics, however this is critical to determining if a change is significant,” Chesapeake warned EPA in October 2013.

Federal environmental officials later cited this issue in explaining why their agency has been unable to find any suitable well sites to conduct its testing. 

“For a location to be suitable, it is necessary to gather a minimum of one year of characterization data for ground water and surface water prior to and following unconventional exploration activities in the study area, and for there to be no other hydraulic fracturing activities on adjacent properties, currently or potentially leased, during the entire study period, which could last several years,” Claudia Meza-Cuadra, Office of Science Policy of the EPA, wrote in a June 13, 2014 email to a Greenpeace representative who inquired if testing plans were cancelled. “Unfortunately, so far we have not identified a suitable location.”

In essence, the industry successfully bogged the federal agency down, eventually forcing the EPA to lower its ambitions.

The role Chesapeake and other industry officials are playing in re-shaping the EPA's study matters.

Historically, regulation of oil and gas drilling has largely been left to states. Federal lawmakers pushed for the EPA to conduct its own national study as a potential first step toward imposing tighter and more uniform rules on the industry. But this study, which has proceeded at a glacial pace, has progressively been watered down since the outset. 

Initially, the study was supposed to consist of four distinct parts. It would use powerful computers to model theoretical risks, investigate reported contamination in five states, devote itself to precise quality control, and crucially, directly measure pollutant levels before and after fracking at two separate well sites, to show what changed after the industry began its work.

But EPA's plan — especially for the direct measurement part of the study — called for a heavy reliance on industry cooperation and voluntary agreements about access to drilling and fracking sites. Companies like Chesapeake Energy and Range Resources used this to extract a series of promises from the EPA (and their leverage increased as other companies in the industry declined to participate in the study). The documents reviewed by DeSmog were provided by Greenpeace, which obtained them through an open records request.

Range Resources Enjoyed Favorable Treatment from EPA

For example, a confidential agreement between Range Resources and the EPA shows a series of concessions by federal officials. Three days notice was to be given before scientists visited the well site. Scientists were to be accompanied by a company expert at all times. Range was to be given accelerated access to any test results showing possible contamination. Range would be given 30 days to review “any draft report” using data from their sites before publication. The company would be provided with copies of all pictures and video taken at the site.

Companies were also promised the ability to take samples at the same time and locations as EPA, enabling them to conduct their own shadow studies. The industry used that access to hire a contractor to conduct a review of the EPA's study. Emails between top level EPA officials show repeatedreferences to those reviews.

EPA officials declined to respond to specific questions from DeSmog surrounding the documents, but did point to the agency's commitment to robust involvement by stakeholders. “[F]rom a scientific point of view and working with the budget Congress gave us, we have been gathering the data necessary to best answer the scientific questions that were posed in the hydraulic fracturing study,” EPA spokesperson Liz Purchia wrote in an email to DeSmog.

Over the past two years, while the federal research has dragged, in no small part due to the extensive energy industry involvement, consensus opinion within the broader scientific community has begun to coalesce on the serious risks posed by fracking. Two thirds of scientists surveyed in January by the Pew Research Center oppose increased use of fracking, while 31 percent support it. 

A representative from API failed to respond to a request for comment from DeSmog, but API has previously called forEPA to pay greater attention to input from stakeholders such as oil and gas drillers.

And yet, the documents highlight that the industry has no shortage of access to the study.

EPA officials repeatedly offered to allow Chesapeake Energy to fund additional sampling (“If CHK wants 3 [samples], they can pay for it,” an EPA official tells the company, for example). It is not clear whether Chesapeake paid for additional tests or whether such data was integrated in the federal study. If either occurred it could raise questions about the independence of the federal agency's  research.

Chesapeake Energy also demanded the right to vet the EPA's monitoring well drilling contractors and even to review field testing notes and photographs.

“Review of the field results is very important and needs to be conducted immediately after sample collection by both EPA and CHK jointly,” a company official wrote in the margins of EPA's planning documents, objecting to EPA's plans to have field results reviewed by EPA and its contractor.

The companies also used their access to planning documents to sow the seeds for later objections. For example, Chesapeake officials called for all other possible sources of contamination within a three-mile radius of wells to be identified. They pushed for the EPA to limit their testing to shallower depths of underground water supplies. They criticized the types of testing and the substances to be tested for. They called for the EPA to describe exactly how they will distinguish between various possible causes for any changes in chemical levels revealed by tests.

But the oil and gas industry is not the only outside interest group playing an active role in federal research that was supposed to be independent.

The documents show active participation from former and current political appointees.

For instance, the documents show Heather Zichal, former Obama White House Deputy Assistant to the President for Energy and Climate Change, was involved in discussions surrounding the study. Ms. Zichal has been nominated to the board of directors of Cheniere Energy, which plans to export Liquified Natural Gas through a LNG terminal in Corpus Cristi, as DeSmog recently reported.

The role played by White House level oversight drew some mild chiding from EPA officials involved in the study. “This is after all a scientific study” Robert M. Sussman, a Senior Policy Counselor for the EPA, wrote in a June 2012 email to others high up in the agency, including then-administrator Lisa Jackson, “and the scientists need some room to do their work.”

Read also: EPA's National Study into Fracking Narrowed as Key Goals Fall by Wayside Due to Industry Pressure

Photo Credit: “Pipette adding fluid to one of several test tubes”, via Shutterstock.

With oil prices continuing to languish, companies like Halliburton and Schlumberger have started talking up a way to get more shale oil and gas for less money: re-fracking wells drilled over the past 10 years, kick-starting flagging production and pumping out more shale oil and gas while spending less than the cost of a new well.

Excitement has spread among oil companies and investment analysts alike.

“You want to talk about the next step to increasing production without increasing costs?” Carl Larry, director of oil and natural gas at Frost & Sullivan, a consulting firm, told Bloomberg. “Re-fracking looks great.”

“In terms of the market potential, I think you're talking billions in terms of revenue opportunities over an extended period of time,” Schlumberger CEO Paal Kibsgaard told investors during a quarterly conference call this year. “[I]n terms of how many wells, I would say there are thousands of wells in North America land that are candidates for refracturing, and this is both shale liquids and shale gas.”

“If you look at the top operators across North America that we work with, there’s not a single one of them that’s not talking about re-fracks today,” David Adams, a Halliburton vice president, told Bloomberg.

“E&Ps are no longer on a treadmill,” IHS Energy Senior Consultant James Coan, announced on May 20, according toE&P Magazine, (E&P refers to Exploration and Production oil and gas companies).

Despite the headlines touting re-fracking as a ticket to solvency for drillers despite low oil prices, many are skeptical that the technology is nearly as ready as the oil industry would like it to be. Early efforts to re-fracture wells have repeatedly run into stumbling blocks, earning it the nickname“pump and pray” within the industry.

So oilfield services companies are experimenting with re-fracking techniques, hoping that they will figure out how to make re-fracking less financially risky. The push to find new ways to re-frack wells is being compared by some to the onset of the shale rush itself.

“Who is going to be the George Mitchell of re-frack?,” Mr. Coan asked during webinar last month, referring to the wildcatter who first produced substantial amounts of gas from the Barnett shale.

If you believe the hype, an enormous number of shale wells could wind up being re-fracked – bringing rigs, truck traffic, and all the associated impacts of fracking right back to wells that were drilled just a few years earlier. At least 50,000 existing wells nationwide are considered candidates for re-fracking, according to Bloomberg. An IHS analysis predicts that refracks will rise 20 percent over the next several years, up from just one percent of current wells.

The dash to experiment with re-fracking at wells nationwide is also raising concern that re-stimulating wells could put unanticipated stresses on aging wells and that state regulators are unprepared to regulate the myriad of techniques that may be used – and for the sheer volume of additional water consumed by the re-fracking process and the additional wastewater that would be produced.

The drive to re-fracture old wells also renews doubts about drillers’ claims to investors that the shale wells they drilled would produce at profitable volumes for up to 65 years – since some of the wells being touted as re-fracking successes are as little as two years old.

Investors have long known that shale wells have a notoriously fast decline – dropping off 60 to 70 percent after just a couple of years. But when drillers calculate their reserves and report them to the Securities and Exchange Commission, they assume that shale wells will keep pumping out profitable levels of oil and gas for decades – a claim no one can prove or disprove with certainty because even the first shale wells are under 15 years old and drillers argue that those wells didn’t use current technologies.

While those predictions remain unproven, it is clearly established that shale wells generally have dazzling initial production rates that fizzle fast, and that fast decline has been the main reason that many companies are caught up in the need to continually drill more wells to replace the drop-off in production from older wells. It’s what industry analysts like Mr. Coan call a “drilling treadmill,” where companies must constantly keep drilling new wells just to stay in one place.

Instead of escaping the treadmill cycle, companies that re-fracture could wind up caught on a different treadmill, where each individual well requires additional millions of dollars’ worth of re-fracking just to keep it pumping out oil. (A round of re-fracking generally costs about $2 million, Halliburton Co. estimates.) Since the process is only recently being applied to shale wells, no one can say for certain how long the boost from re-fracking will last, or if a well’s production will quickly plummet just like it does with the first frack job. (Platts reported predicted drops of up to 70 percent, which would be roughly the same as an initial frack job).

In years past, re-fracking was largely confined to vertical well bores, but companies are now experimenting with methods that let them re-stimulate horizontally drilled shale wells, making far more wells potential candidates for re-fracking.

Companies are trying out many different tactics to re-stimulate shale wells. They sometimes simply pump more sand, water and chemicals into an existing well, re-opening fractures that have been forced shut by the enormous weight of the rock around them. Other times, re-fracking means creating new fractures between existing ones. Or it can mean pumping special plastic bits into a well, in the hopes that fractures with little oil or gas flowing out of them will get clogged, raising the overall pressure of the well.

Many industry analysts remain skeptical that re-fracking can turn unprofitable wells into the next gusher – or even bring poorly performing wells into the black. “While operators can make a good return on the best candidates, those wells can be difficult to identify and it can be even harder to convince partners that making a significant investment in a producing well is best,” wrote Wood Mackenzie analyst RT Dukes. “A general rule of thumb did emerge: if it doesn’t make sense to drill and complete wells, it probably doesn’t make sense to recomplete them in earnest either.”

That’s bad news for shale investors, since up to 40 percent of shale wells are money-losers when oil prices are low, according to Robert Drummond, President of North America for Schlumberger, who dropped that statistic during a World Oil breakfast talk last year.

It’s also bad news for landowners hoping for royalty checks. Already, a wave of bankruptcies has begun to sweep across the industry, leaving Quicksilver Resources and at least three others insolvent and analysts predicting more to come. 

The downturn has also slashed expectations that the shale rush would bring jobs to many communities, as workers are now being laid off instead of hired. As of March, over 75,000 workers had lost their jobs due to the oil bust.

Facing this kind of financial pressure, some drillers have described their early experiments as extremely successful as they try to keep investors interested and capital flowing in.

“We've seen such a dramatic improvement in our completion results with the newer technology,” Tony Vaughn, a vice president for exploration of Devon, told Reuters last month.

And some investors, it seems, have been listening.

“We’ve been re-fracking in essence for a couple of years, and we actually see this as a natural extension with the maturing of unconventional wells overtime,” Jeff Miller, president of Halliburton Co. told investors on an April 20 conference call. “I would say what has changed in terms of giving it energy right now, more energy is the current market and access to capital.”

If re-fracking catches on, a few impacts seem inevitable – the shale industry will consume more water overall than previously expected based on one round of fracking per well. That means much more wastewater, this time contaminated with naturally occurring toxic and radioactive materials plus potentially a mix of chemicals from two different rounds of fracking.

There are other potential impacts about while little is known, due to lack of study, and for which state regulators seem as unprepared as they were at the start of the initial shale rush.

What impact will re-fracking (and additional wastewater disposal) have on earthquakes? What chemicals, proppants and other materials will companies use to re-stimulate shale wells and what risks do they pose to workers or if spills or leaks occur? Is it safe to re-frack where there are multiple wells all bored from the same pad, or will fractures from one well accidentally connect with fractures from an adjacent well? How will the concrete and steel well casings hold up under repeated pressurization? How many times can a well be re-fracked before it begins to crack and leak under the added pressure?

“It sort of shows how much we don't know about fracking,” Andrew Logan, director of Ceres’ oil and gas program, told Reuters last year, “and why it fails sometimes.”

Photo Credit: “American Oil Industry” via Shutterstock.

For the past several weeks, the drilling industry — hammered by bad financial results — has begun promoting its next big thing: the Utica shale, generating the sort of headlines you might have seen five years ago, when the shale drilling rush was gaining speed. “Utica Shale Holds 20 Times More Gas Than Previous Estimates”, read one headline. “Utica Bigger Than Marcellus”, proclaimed another.

The reason for the excitement was a study, published by West Virginia University, that concluded the Utica contains more shale gas than many estimates for the Marcellus shale, a staggering 782 trillion cubic feet.

“This is a landmark study that demonstrates the vast potential of the Utica as a resource to complement - and go beyond - what the Marcellus has already proven to be,” Brian Anderson, director of West Virginia University's Energy Institute, told the Associated Press.

But those considering investments based on the Utica's potential may want to pause and consider the shale industry's long history of circulating impressive predictions, later quietly downgraded, while spending far more than they earn.

“The industry has not been generating enough money to cover its capital spending and dividends,” Fidelity Investments energy fund manager John Dowd told Barrons.

Indeed, while it is clear that the shale drilling rush has produced large amounts of oil and gas, (alongside wastewater and other environmental impacts), the financial prosperity promised by its backers has not seemed to materialize.

Burning Through Cash

Companies like Chesapeake Energy, the nation's second largest producer of natural gas and one of the most aggressive advocates of the shale rush nationwide, have been hammered hard by low oil prices and high costs in 2015.

“Chesapeake is expected to post a net loss of $3.18 billion this year, based on the average of eight analysts’ estimates compiled by Bloomberg. That would be the company’s steepest annual loss since 2009,” Bloomberg reported last week as Chesapeake announced that it was eliminating dividends paid out to investors.

“Only twice in the past two decades has the second largest gas producer reported positive cash flow,” Bloomberg added.

In other words, even while the price of oil and gas touched record highs, Chesapeake and others in the industry were burning through cash. All told Chesapeake Energy's market capitalization has plunged from highs over $21 billion in 2011 to just $5.9 billion today – meaning that investors in the company have lost billions of dollars over the past four years.

And now, as oil prices have dropped to below $50 a barrel, down from highs of roughly $140 in 2008, a wave of bankruptcies and stock price collapses has begun to sweep the industry, with many analysts predicting more hard times to come.

“The top 60-odd shale firms are making a return of roughly zero on the swollen stock of capital they employ,” the Economist reported earlier this month.  “With less cash flowing in, shale firms need to slash their investment by over two-thirds if they are to balance their books.”

For those living in heavily drilled areas, job losses might be the most visible signs of the industry's downturn. Two of the largest oilfield services companies, Halliburton and Baker Hughes, have cut over 25,000 jobs — more than double what they projected in February — due to the downturn. Consol Energy recently announced it would lay off 10 percent of its workforce. And Weatherford International recently said it would lay off 11,000 workers, 10 percent more than it had projected.

Hype and Downgrade

Wildcatters and their supporters have rarely been shy about promoting the economic potential from drilling. Aubrey McClendon, former CEO of Chesapeake Energy, ousted over undisclosed risk-taking and loans revealed by investigative reporters at Reuters, once called the Utica the “biggest thing to hit Ohio since the plow.”

But under McClendon, Chesapeake Energy's business model was in no small part based on ginning up interest in one shale play after another, then selling that acreage to other drillers at a vastly increased price.

In comments during 2008 conference call, when Chesapeake's stock was collapsing, McClendon was unusually blunt about how Chesapeake worked.

“That includes a part of our business model that apparently some people still have a hard time understanding, and I think there are two ways to make money in the business. One is to drill wells and just have the gas produce out over time. But there are other ways as well, and that is doing these various asset monetizations. I think when we’re through with 2008, you will see that our company will have monetized somewhere between $10 billion to $12 billion of assets during the year including drilling carries and would have an indicated profit margin if you will on that of about $10 billion. I can assure you that buying leases for X and selling them for 5X or 10X is a lot more profitable than trying to produce gas at $5 or $6 mcf,” Mr. McClendon said.

In other words, the country's second largest producer of natural gas was in the business of flipping acreage — giving it a strong incentive to predict incredible amounts of production from the land it leased.

Meanwhile, federal estimates of the amount of shale gas and oil that companies have the technology to tap have repeatedly suffered major downgrades.

Last year, the federal government slashed its projections for California's Monterey shale, concluding that the technology to tap it didn't exist, wiping out two thirds of the nation's predicted shale oil resources. In 2011, the USGSadmitted it's estimates for the Marcellus shale were also unrealistic, leading it to conclude only 84 tcf could be drawn from the Marcellus, down 80 percent from its prior prediction of 410 tcf.

This time around, a close look at the WVU study highlights several reasons to believe the hype about the Utica is overblown, the Post Carbon Institute's David Hughes concluded.

“The WVU assessment of technically recoverable resources in the Utica is incomplete as presented and wildly optimistic compared to the earlier USGS assessment and compared to likely well performance,” he wrote in a July 21 review. “Although the WVU report does provide a valuable roundup of pertinent geological data, its assessment of technically recoverable resources should not be viewed as credible.”

The 782 trillion cubic feet is 1947% higher than the estimates published by the USGS in 2012, Hughes pointed out, adding that to reach its conclusions, the WVU study assumes an average well will produce roughly 12 times as much gas as the USGS predicts and would require so-called “sweet spots,” places where the highest-producing wells can be drilled, to extend much further than the USGS concluded.

There's no question that the shale industry can drill some “monster wells,” or wells that produce enormous gushers of gas. EQTannounced on July 23rd that it had completed the most productive Utica shale well ever drilled, in a town in Greene County, PA.

But for all the excitement around that monster well, it's worth keeping in mind other Utica results announced by the same company earlier this year: in February, EQTwrote off all of its Ohio Utica acreage, taking an impairment of $162 million, because the amount of gas its wells produced over their lifetimes was “significantly below expectations.”

Yesterday's Bust

The growing losses for drillers have by no means stopped the fracking rush and may in fact be bad news for those living near wells currently being drilled. Companies and their contractors are under enormous pressure to cut costs — and these shortcuts may mean that “best practices” are less likely to be followed.

Compared to others in the oil and gas industry, the shale industry has been aggressively slashing its costs. “North America’s shale industry has seen the biggest cost declines, of 25% to 30% compared to 2014 levels, Espen Erlingsen at Rystad Energy estimates,” the Wall Street Journal reported last month.

But it's not clear that state environmental regulators, who must now oversee an industry where incentives to take shortcuts are stronger, are prepared to adjust.

In fact, the recent slump has meant that environmental regulators are under greater financial pressure themselves, especially in states that depend on the industry to fund much of the cost of oversight.

“[The Pennsylvania Department of Environmental Protection] uses permit fees, fines and $6 million each year from the state’s impact fee levied on Marcellus Shale and other unconventional wells to pay for the oil and gas program’s roughly $21 million annual budget. That means the program has not had to rely on the fickle state general fund budget process each year to support its work,” the Pittsburgh Post-Gazette reported earlier this year. “But now its primary funding source has turned out to be equally fickle, as natural gas operators have responded to low oil and gas prices by reducing their capital spending and improving efficiency by coaxing more gas from fewer wells.”
 

Photo Credit: One hundred dollars in fire, via Shutterstock.

The Public Accountability Initiative (PAI) has published a timely “back to school” report concluding that “frackademia” is alive and well at U.S. universities. 

While only focusing on the people and money behind five recent studies, PAI's report sits within a much broader universe of research in its Frackademia Guide. The new report serves as an update of its February 2015 report titled, “Frackademia in Depth,” a title poking fun at hydraulic fracturing (“fracking”) front group Energy in Depth (which did not react kindly to its report).

As PAI points out in the new report's introduction, the results of many recent science studies (some funded by the industry) have tarnished the reputation the industry spends so much money aiming to keep shiny. These include studies on fracking's climateimpacts and health impacts, environmental justice issues associated with fracking, among others.

Given that backdrop, the oil and gas industry has swept in and funded fresh studies whose outcomes were more favorable — aka “frackademia” — on topics ranging from fracking's groundwater impacts, environmental impacts and economics. 

Rick Berman, Tim Considine

Among the most compelling findings in the PAI investigation is that Rick “Dr. Evil” Berman, infamous for creating industry-funded front groups in many policy arenas via his consulting company Berman & Company, has gotten into the frackademia game.

The Berman connection becomes clear when investigating the men behind the curtain of a study published in September 2014 titled, “Economic and Environmental Impacts of Oil and Gas Development Offshore the Delmarva, Carolinas, and Georgia,” which makes the case for offshore drilling in the Atlantic. As PAI explained, it was funded by Interstate Policy Alliance, “a project of the Employment Policies Institute.”

What's Employment Policies Institute? A Berman & Company front group.  

“Though Berman and Company does not disclose the identities of its clients, the firm and its network of front groups have recently begun attacking fracking opponents and climate change regulations, suggesting it has been retained by the oil and gas industry,” explained PAI.

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Just as important as Berman, in this case, was the author: Timothy Considine. Considine has been embroiled in other frackademia scandals, including a 2010 study eventually retracted and reissued by Penn State University after it was revealed that he didn't disclose its funder, the Marcellus Shale Coalition lobbying organization.

He's actually featured twice in the PAI report. The other recent Considine frackademia example came in the form of a study titled, “The Economics Impacts of the Proposed Natural Gas Severance Tax in Pennsylvania,” funded by the American Petroleum Institute. 

That report predicted brutal impacts for Pennsylvania's economy if its legislature adopts a severance tax for those fracking in the state's Marcellus Shale. 

Harvard, Syracuse

Harvard Business School and Syracuse University also feature prominently in PAI's report. The Harvard Business School example, in particular, serves as almost a perfect case study of how frackademia works in action. 

“America’s Unconventional Energy Opportunity,” the title of Harvard's report published jointly with Boston Consulting Group in June 2015, was featured in an opinion article by The New York Times writer David Brooks and in an uncritical article distributed to newspaper wires worldwide by Reuters.  

Like a prominent 2013 Environmental Defense Fund-convened study on the climate change impacts of fracking, the steering committee of the Harvard study was a who's-who of people with industry ties. 

Image Credit: Public Accountability Initiative

As PAI pointed out, co-author “David Gee, a [Boston Consulting Group] managing partner, has worked for the energy industry for more than 30 years, with stints at Baker Hughes, PG&E, and AES Corporation.”

Another co-author not mentioned in PAI's report is Michael Porter, a faculty member of the Harvard Business School and formerly of the Monitor Group, a prominent consulting firm that went out of business in November 2012. Monitor Group has been involved in undisclosed pay-for-play before, conducting de facto shadow public relations work for former Libyan dictator Muammar Gaddafi.  

Energy in Depth also stars in PAI's report in the form of a Syracuse University study on fracking and groundwater contamination that served as a counter of sorts to earlier Duke University fracking groundwater contaminationstudies. 

That study was promoted by both EID and Natural Gas Now, the latter often featuring the work of Tom Shepstone, a former EID employee and current industry consultant. As it turns out, the study was covertly funded by Chesapeake Energy, though the co-authors claimed they had “no competing financial interest” in any entities potentially impacted by the study's results. 

Lead author Donald Siegel“had failed to disclose that, in addition to providing the data upon which his conclusions were based, oil and gas driller Chesapeake Energy had also funded the study and paid Siegel directly,” wrote PAI.

“Further, one of Siegel’s co-authors, Bert Smith, is a former Chesapeake employee who now works for Enviro Clean, a firm that consults for Chesapeake Energy. While Smith’s employment at Enviro Clean was noted when the study was published, the fact that his employer works for Chesapeake Energy was not.”

On at least one instance, PAI pointed out, Siegel actually wrote an article on EID's website.

Tobacco, Climate Denier Playbook

As highlighted many times in the report, journalists often take press releases from universities and write stories about these studies without following the money.

“Since the tobacco industry pioneered the use of compromised scientists to sow doubt about the harmful effects of smoking, corporations have employed a complex of industry-funded academic institutes, public relations outfits, lobbying firms, and independent consultants to provide seemingly independent support for their lines of business,” explained PAI.

PAI has done a great public service by naming names and doing the work journalists all too often fail to do to reveal conflicts of interest.
 

Photo Credit: Jannis Tobias Werner | Shutterstock